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Calculating Levered Beta with Net Debt
Hi everyone! I've found on internet that Levered Betas are generally calculated based on Market Value of Debt when available, but a friend recently had an interview in which he was told that, in some cases, Net Debt could be used. So : 1) Do you know if it's more frequent to use Net Debt or not? 2)...
CAPM with Negtive Beta
Hi everyone! I've found some discussions around negative cost of equity for companies with negative beta and so with cost of debt > cost of equity, but it seems unrealistic and there haven't been any real answers. So how would you calculate Cost of Equity for a company with a negative Beta? Thank...
Alpha vs Beta active investing
Would you guys rather join a firm that tries to find alpha or that bases most of its strategy around factor investments? Would love to hear your reasons as to why
What is the beta and alpha for bond
hey guys, I know what is beta and alpha for equity, but what is beta and alpha for fixed income? very curious, seldom saw relevant information. And I always heard trader said high beta bond or low beta bond, so what is that mean as well?
L/S strategy / HFs managers Prefer low-beta stocks?
Why is this the case? In other words, I've heard that a rise in a low beta stock is equivalent to a larger rise in a high beta stock. Is this because more of the volatility of a high beta stock is attributed to the market?
Hedge Fund Risk Limits Explained
Could someone who has experience working at a L/S fund clearly explain how hedge funds observe the following risk limits: - What is the difference between market-neutral, beta-neutral, and having some X% of "net exposure"? - What is the difference between being factor-neutral and factor-aware? - Why...
investment beta vs company beta.
Hi, I am an intern who is green and still learning, so forgiveness please. I am very confused as to the difference, if any, between the beta of a company vs that of an investment. I have included an example and any advice would be appreciated. "Managers of Company ABC have been told that their...
Do Dividend-Paying Stocks Have Lower Cost of Equity Implied by CAPM?
I understand that Cost of Equity = risk-free rate + levered beta × market risk premium, so stocks' CoE calculation differ in levered beta; levered beta is calculated by taking the mean unlevered beta from public comps and re-levering it based on the company's financial structure. So if there're two...
Why is it said that investors don't get compensated for firm specific risk, they just get compensated for market risk in Capm?
Beta actually is there to get us to the firm specific risk against the market. So why is it said that investors are thought to hold a well diversified portfolio and don't get compensated for firm specific risk when beta gives that compensation? I guess I am missing something here...
Beta Explanation
Hi Monkeys, Saw a statement in a book and wanna make sure if it’s legit The unlevered beta shows you the risk of a firm’s equity compared to the market. And also wanna make sure that we do use levered beta for CAPM right? Thx.
Comprehensive Guide to Beta in the CAPM and Cost of Capital
I've been wanting to do a post like this for a while given the amount of confusion regarding terminology and the various formulas during IB interview prep. All from Berk&DeMarzo's Corporate Finance and an MBA Corporate Finance class. Note that this is academic and probably overkill, but I hope it's...
Where to Find A Stock's Beta?
I'm a college student trying to learn how to do DCF model on my own--i'm just curious--can you tell me where i can find the beta of a stock? How to find a company's beta? There are several ways that you can find beta for use in a company analysis. The main two ways that you can find a beta is by...
Any alternative to beta?
So I have a very fundamental question on Beta. It seems that beta has it's flaws: backward looking, doesn't distinguish between upside and downside and have liquidity bias as well. Beta is a measure to capture market risk but do we only have beta to capture market risk ? What other alternatives do...
Making $$$ when everything is RED
Now that the markets are experiencing a correction, many stocks have lost the gains from the last couple of months. Would it be wise to start looking at Negative Beta stocks? In theory, a stock with a negative beta means that it will move in the opposite direction of the market. So as the market...
Why is beta of asset=unlevered beta?
Didn't get this- Beta Equity = Beta Asset + (D/E)(Beta Asset- Beta Debt) Beta Asset is not dependent on how the assets of a firm are financed and hence it is equivalent to a firm’s unlevered beta. T being the tax rate, the relationship between the levered and unlevered beta can be written as Beta...
How do you estimate a market value of debt? (UK companies)
I've trying to follow Damodaran's instructions on estimating a market value of debt: *"The market value of debt is usually more difficult to obtain directly, since very few firms have all their debt in the form of bonds outstanding trading in the market. Many firms have non-traded debt, such as bank...
unlever the beta when there is preferred stock
Dear all, My query is the following (hope one of you could help): I'd like to take into account preferred stock when unlevering equity beta & then relevering the asset beta to a new equity beta, appropriate to the target cap. structure. If I pick Hamada hypothesis (existing tax shield & null debt...
unlever beta with preferred stock
Dear all, My query is the following (hope one of you could help): I'd like to take into account preferred stock when unlevering equity beta & then relevering the asset beta to a new equity beta, appropriate to the target cap. structure. If I pick Hamada hypothesis (existing tax shield & null debt...
WACC and Unlevered Beta
Hey guys, one issue with CAPM , WACC and Beta just doesn't seem right to me. Maybe somebody wouldn't mind helping me to figure it out. The usual formulas are Bu=Bl/(1+(1-t)D/E), Re= Rf + BlERP, WACC= (1-t)RdD/(D+E) + Re*E/(D+E), aren't we double counting tax shields if we use them together?
Bottom-up Betas
I understand that when doing a DCF for a private company, we usually have to calculate an estimate of the company's beta. Correct me if I am wrong, but I also understand that the most common method is to find comparable companies, deleverage their equity beta to find their asset betas, average for...
Hedge Fund Interview Guide BETA is LIVE!
We are finally here! For those of you waiting on the WSO Hedge Fund Interview Guide , thank you for your patience -- it has been a long process to get to this stage. Unlike investment banking or private equity, the hedge fund universe is enormous, so we really had to spend a long time drafting the...
Volatility of returns indicates different relative riskiness than Beta
Hi everyone, I'm trying to compare the riskiness of two bond markets, using BAML indices as proxies. In one approach, I am calculating annualized volatility of total returns and in the second approach, I am calculating the Beta of one index relative to the other. ...however I got some results that...
Why can't you use private companies as part of your public company comperables analysis?
I understand that it wouldn't make sense to use a private company in your calc of cost of eq or wacc BC private companies don't have values for market cap or beta, but why couldn't you use private companies in public comps ? Is it just because it's literally called "public" comps? Thanks in advance
Beta for Illiquid assets
Hi all! Today during class we were looking at the valuation of real estate and for the example given, the WACC was provided. I was just thinking that for the calculation of WACC , how do you estimate the beta? My understanding of beta estimation is that you will require a list of returns for both...
Do companies with stable earnings usually have a lower beta?
Was reading a case study and this question popped into my head? What do you guys think?
Why is CAPM used to estimate Cost of Equity when Beta only measures systematic risk?
Am I overlooking something? If Beta measures only systematic risk (therefore assuming that all firm-specific risk can be diversified away), then why is the CAPM model used to estimate cost of equity? Isn't it a little misleading because some firms with very high firm-specific risk have very low...
Nvm,.....,.
Nvm...
Notes for Technical Interview Questions
During a recent round of interviews with several banks, headhunters sent across a number of potential technical questions that they said I should be very comfortable with. However, through all of my interviews I was never actually asked any technical questions (although I did do a 3 hour modelling...
Industry Beta- 2004 Chinese Internet Industry
Hello, Could anyone perhaps give me some guidance as to how I could obtain the industry Beta of China's Internet industry in the 2003/2004 years? Thank you.
Beta (Levered) Exercise (Please Help)
I have the following question and would appreciate if you could tell me if I get it correct: I am trying to calculate the Required return for a company that introduces Debt in its capital structure. At the beginning the company is Equity only and has beta (unlevered) of 1.2. The Risk free rate is 6%...
Seth Klarman on Beta - Inviting Contrarian Views
In his legendary book 'Margin of Safety', Seth Klarman deplores the use of beta as a measure of risk. He argues that beta is simply a measure of historical volatility of a stock and doesn't say anything about 'risk' in its literal sense. For instance, a low priced security may have a historically...
Trick Question? - Which Stock is riskier?
Warning: I'm a layman when it comes to finance (I'm an Engineer). I was wondering if this is just a simple question or if there are deeper insights. "Stock A trades at $10/share and has a beta of 2.0; stock B trades at $50/share and has a beta of 0.5. Suppose you know with perfect knowledge that...
Hamada formula
Hi guys, When we use the Hamada formula to re-lever an unlevered beta, what do we use as equity value since it is the target of our valuation? Should we use the average capital structure of our comparables sample? If we do it this way, wouldn't we end up with the same levered beta we had at the...
Really Dumb Beta Question
This may not be the right forum... I have a project due tomorrow, and as part of it I need to calculate the beta of an ETF . I'm using the S&P 500 as a benchmark and looked up the historical prices for both over the past year, divided into weekly prices. I plugged this into excel and calculating the...
Asset Beta and determinants
Hi, I am trying to understand the logical reason for the two companies Asset betas to be different. E.g. if we take 2 companies in same industry and unlever their equity betas. You will probably get two asset betas that will be different. Can someone share some explanation why they will be different...
beta and systematic risk
in finance, beta can be either interpreted as the asset's sensitivity towards the market, in terms of return, or as the systematic risk. i understand the first interpretation, but i just cant get the second one, as: - how can beta be the systematic risk if the beta can be negative? i cant see how...
Beta from comps in different regions/markets
Hi guys, got a question for beta calculation. I had my comps set downloaded from CIQ, and was about to start the unlever - average -relever exercise to calculate the beta for the target company. However, I just realized that my target is an EMA company, while many of my comps are across US/Europe....
Tuesday's Great Debate: Soros, Buffett, and Models
The Black Swan author Nassim Taleb was in Canada last week for the Salon Speakers series and was asked by an audience member; if given a choice between investing with Buffett and billionaire investor George Soros, who would he pick? The former prop trader said he would probably pick Soros, and...
Question on alpha and beta
Hi, Recent college graduate and new here to WSO , very excited to learn more about Finance. I have recently started creating an investing sort of tool in excel and I have a question regarding alpha and beta. As I understand (correct me if I'm wrong), it is a widely debated topic, whether it is...
Beta for private company with no public comparble
how to find beta for a private company with no public comparables> got this question from my interview yesterday.
weird calculating beta question
when calculating beta by regressing stock returns vs. market returns, do we have to add back the dividend payments to the stock returns? because just pulling stock returns will give the capital gains component. but i have never seen this done the reason this makes sense is because the CAPM gives the...
Foreign firms for domestic firm BETAs
Ok...working on a deal...using Enterprise Value/ EBITDA as part of the valuation... Heres my question... the company is an Indian company....and i couldn't really find any others like it in the country that are public. I did find some in the US that are public. Is it appropriate for me to use these...
Intuitive Explanation of The Levered Beta Formula
I am sorry if this question seem stupid/simple, but still I'd greatly appreciate your help. levered beta = Unlevered Beta * [1 + (1 - Tax Rate) * Debt / Equity ] Unlevered Beta = something we see on Yahoo Finance Could someone please take a shot and explain why we multiply by [1 + (1 - Tax Rate) *...
Beta?
Hey guys, I was just wondering if you know of any stocks with negative betas? I know that theoretically it is possible, however, are there any real world examples?
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