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calculate historical beta..?
I'm doing an analysis about historical financial performance from period 2004-2008,, in estimating the beta for each period, could I use only 1 year return data of stock & index in the regression,,? since I'm gonna valuate the WACC for each year..
I know that several years (min 4-5 years) historical data were required to estimate the beta,, but isn't it was b'coz we want to use it to predict future stocks movement, therefore the more historical data used in the regression the more the accuracy of the beta estimation since it covered more info of stocks movement in the past..
But if I want to analyze the historical cost of equity of a company in a certain period only, let's say in 2005,, wasn't using 2005 monthly return data (stocks & index) would be more appropriate, since I want to analyze that period only... So I analyzed historical cost of equity in 2005 based on the sensitivity of the stock movement to the index in 2005 too..
I know that several years (min 4-5 years) historical data were required to estimate the beta,, but isn't it was b'coz we want to use it to predict future stocks movement, therefore the more historical data used in the regression the more the accuracy of the beta estimation since it covered more info of stocks movement in the past..
But if I want to analyze the historical cost of equity of a company in a certain period only, let's say in 2005,, wasn't using 2005 monthly return data (stocks & index) would be more appropriate, since I want to analyze that period only... So I analyzed historical cost of equity in 2005 based on the sensitivity of the stock movement to the index in 2005 too..
3 Answers
- 1 decade agoFavorite Answer
No, I don't have much time to go into detail, but you should go to yahoo finance and get the monthly returns for the stock for those 4 years. Use an excel sheet and include the monthly returns for its corresponding index. (I don't remember the exact formula for beta but you can find it online, sorry).
- 5 years ago
The beta coefficient was born out of linear regression analysis. It is linked to a regression analysis of the returns of a portfolio (such as a stock index) (x-axis) in a specific period versus the returns of an individual asset (y-axis) in a specific year. Beta = Slope of the line. i.e. a stock with a beta of 1 would plot directly on the line. One point on the x-axis = One point on the y-axis. See the link below for a pretty detailed explanation. It may also help give you an idea of how to write the formula for your speadsheet. -good luck
- ★♥Tim Gunn♥★Lv 41 decade ago
could I use only 1 year return data of stock & index in the regression,,?
no you can use all four years. I would use slope function to calculate the beta.
