facebookWhat are the disadvantages of Beta? - Seedly

Advertisement

Anonymous

18 Apr 2019

βˆ™

Stocks

What are the disadvantages of Beta?

Discussion (2)

What are your thoughts?

Learn how to style your text

Hello!

I feel that the disadvantage of using beta would be that the data used to calculate beta is based on historical data thus it is unlikely that it is an accurate prediction of future volatility.

Isaac Chan

12 Mar 2019

Business at NUS

I think one of the main disadvantages is that it is historical, and not forward looking. This can be an issue because Beta assumes that your stock is correlated to the overall performance of the market even in the future. For some industries that are mature and stable, harnessing your beta from past performances of a stock may be more reliable than an industry which is relatively new.

Another potential disadvantage is that Beta may not be applicable for new companies that haven't been around long enough. There isn't even enough historical data to churn a figure out.

Looking at comparable companies might be a better method of getting your beta from there.

Write your thoughts

Advertisement