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)


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.


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