• Sharebar

So I have regressed the equity returns on the stock market returns. I have obtained the beta. SO, is this (EQUITY?) beta I have obtained levered or unlevered? and if it's levered and I use the Hamada equation to find unlevered beta, will this give me the asset beta?

I also don't understand the fact that if we have obtained the equity beta (i think you call it that) through the regression, why don't we multiply it by the market value of equity as a proportion of the sum of debt and equity to obtain the asset beta instead of using Hamada?

Your help is so much appreciated!

Comments (3)

  • ametista's picture

    Interested in this as well.

  • monkeymark's picture

    It's levered. Unlever by dividing levered beta by (1+(1-T)*(D/E)). That's your asset beta. You do it this way to take into account the tax benefit from debt (the interest payments are tax deductible).

    To go a step further, if you're valuing a company, you would take the industry average and relever the beta to forecast earnings in the future (particularly for the terminal value).

    Might want to confirm with your text book, it's been awhile since I've done this and I don't use it anymore.

  • cruel3a's picture

    To unlock this content for free, please login / register below.

    Sign In with Facebook Sign In with Google

    Connecting helps us build a vibrant community. We'll never share your info without your permission. Sign up with email or if you are already a member, login here Bonus: Also get 6 free financial modeling lessons for free ($200+ value) when you register!

    I'm grateful that I have two middle fingers, I only wish I had more.