In the equation K_j = a + ß_j R_m + e,

Question

Quizplus · Accepted Answer

Beta (ß) is a measure of a stock's volatility or risk relative to the market. A beta of 1 implies that the stock will move in line with the market, while a beta greater than 1 implies that the stock is more volatile than the market, and a beta less than 1 implies that the stock is less volatile than the market. The equation in the question uses beta as a variable to estimate the impact of a stock's return (R_m) on its price (K_j), while controlling for other factors.

In the Equation Kj = a + ßj Rm

In the Equation K_j = a + ß_j R_m