How does beta change from country to country assuming the business has exactly same operations in every country? I presume it should not change
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I could be wrong, but I believe that the country risk is reflected in your equity risk premium because depending on where your company collects most of its revenue, the index you pick as your reference (market portfolio return) changes.
So for example, if you value a Japanese company that does most of its operations in Japan, and you choose to value it in USD, you would use the 10/20/30 year U.S. bond for your rf rate and probably Nikkei's returns for 10/20/30 years as your market portfolio. 20/30 year market premiums are usually either hard to get or unreliable so 10 years is probably your best bet.
There are many different categorizations of beta both within and across countries. However, definitions of what constitutes alpha behavior is relatively constant across cultures. Essentially, beta is anything that is not alpha and vice versa. It's probably a little confusing, because it's like concentric circles, but there's no overlap. That being said, of course, there's more beta in certain countries and less in others. Even more specifically, there are differing levels of beta in regions within countries. For instance, there's way more beta in the West Village than in TriBeCa. Subtle, but apparent if you look hard enough.
Confirmed. I was in West Village tonight for Christmas drinks and saw this first hand.
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