Estimating Beta-Based Expected Returns

In today’s post, I am discussing the concept of stock’s beta value and how it helps us understand stocks expected returns.

What is Stock’s Beta Value?

In its simplistic form, beta is a measure of any individual stock’s risk (or movement) relative to the overall stock market risk (or movement). Since in Unites States, the overall stock market is represented by S&P500 index, Beta for individual stocks is measured relative to S&P500 index. Now, we can extend this relative measure to monthly returns (instead of price movements). If we compare the monthly return of individual stock to monthly return of S&P500 index, then it helps us put an expectation on our returns. continue reading rest of the article….

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