The beta of Amazon stock has been estimated as 2.6 using regression analysis on a sample of historical returns. A commonly-used adjustment technique would provide an adjusted beta of
A) 2.20.
B) 2.07.
C) 2.13.
D) 1.66.

Question

Quizplus · Accepted Answer

The commonly-used adjustment technique for beta is the Blume's adjustment, which adjusts the beta towards 1 (the market beta). This is done using the formula: Adjusted Beta = 1/3 + 2/3 * (Raw Beta). Using Amazon's raw beta of 2.6, the calculation is 1/3 + 2/3 * 2.6 = 2.07.

The Beta of Amazon Stock Has Been Estimated as 2