The beta of a ﬁrm is more likely to be high under what two conditions?

Question

Quizplus · Accepted Answer

In finance, beta measures the volatility or systematic risk of a security or portfolio compared to the market as a whole. A high beta indicates that the stock is more volatile than the market, while a low beta indicates that the stock is less volatile than the market. Therefore, a firm is more likely to have a high beta under high cyclical business activity and high operating leverage, because during economic upturns or downturns, its earnings will be more sensitive to changes in the market and its financial leverage will amplify these effects.

The Beta of a ﬁRm Is More Likely to Be