The factors that affect the company's beta coefficient are as follows:

The beta coefficient is an indicator that measures the extent to which changes in the price of a certain (type of) asset are affected by the average changes in the prices of all assets in the market. It is a key enterprise system risk coefficient when using the income method to evaluate enterprise value. It is necessary for evaluators to analyze various factors that affect the beta coefficient to properly determine the system risk of the evaluation object.

Involving beta coefficients

There are two forms of models for determining beta coefficients. One is the CAPM model (capital asset pricing model, also called security market line model, security market line): E (Ri) = Rf + βi (Rm-Rf) where: E (Ri) = expected return of asset i < /p>

Rf = risk-free rate of return

Rm = market average rate of return

The other is the market model: E (Ri) = αi + βiRm

Both models are univariate linear models, and the parameters in the model can be determined by the least squares method. In both models, the beta coefficient is the slope of the model. When αi = Rf (1-βi), these two models can be converted to each other.

The assumptions, data used for variables, and application conditions of the two models are different. Theoretically, the CAPM model is an equilibrium model based on a series of strict assumptions. The assumptions are a complete market, no cost of information, divisible assets, investors are risk-averse, investors have the same expectations for returns, and investors are free to borrow and lend money based on the risk-free asset rate of return, etc.

That is, the CAPM model describes the relationship between the expected return on assets E (Ri) and asset risk compensation (Rm-Rf) when the market is in equilibrium. The market model describes the relationship between the expected return on assets and the average market return. The market model reflects the relationship between the expected return on assets and the expected return on the market.

Regardless of whether the market is in equilibrium. The β coefficient reflects the extent to which changes in the market's expected return rate affect changes in the asset's expected return rate.

Extended information:

Purpose of beta coefficient

Calculate the cost of capital and make investment decisions (only projects with a rate of return higher than the cost of capital should be invested); Calculate capital costs and formulate performance appraisal and incentive standards. Calculate the cost of capital and perform asset valuation (Beta is the basis of discounted cash flow models); determine the systematic risk of a single asset or portfolio.

Used for investment management of asset portfolios, especially hedging (or speculation) in stock index futures or other financial derivatives. The Beta coefficient has a very good linear property, that is, the Beta of an asset portfolio is equal to the weighted sum of the Beta coefficients of a single asset according to its weight in the portfolio.

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