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What is adjusted beta?

Adjusted beta tends to estimate a security’s future beta. It is a historical beta adjusted to reflect the tendency of beta to be mean-reverting – the CAPM’s beta value will move towards the market average, of 1, over time. The beta estimate based purely on historical data – known as the unadjusted beta – is not a good indicator of the future.

Why is beta a measure of risk?

Beta can be seen as a measure of risk. The higher the beta, the higher the expected return to compensate for the excess risk caused by volatility. From a portfolio management or investment perspective, investors analyze any measures of risk associated with a company to estimate expected return .

How do you calculate adjusted beta?

Bloomberg Estimate Adjusted Beta = Regression Beta (0.67) + 1.00 (0.33) Why Adjust Betas Towards One? Research suggests that, over time, there is a general tendency for betas of all companies to converge towards one.

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