Which of the following is NOT a potential problem with beta and its estimation?
A) Sometimes, during a period when the company is undergoing a change such as toward more leverage or riskier assets, the calculated beta will be drastically different than the "true" or "expected future" beta.
B) The beta of "the market," can change over time, sometimes drastically.
C) Sometimes the past data used to calculate beta do not reflect the likely risk of the firm for the future because conditions have changed.
D) There is a wide confidence interval around a typical stock's estimated beta.
E) Sometimes a security or project does not have a past history which can be used as a basis for calculating beta.

Question

Quizplus · Accepted Answer

The beta of "the market" changing over time is not a problem with beta estimation itself, but rather a characteristic of financial markets that can affect all financial metrics, not just beta. The other options directly relate to issues in estimating beta for a specific stock or project.

Which of the Following Is NOT a Potential Problem with Beta