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

Question

Quizplus · Accepted Answer

A high beta indicates higher volatility in the stock's returns compared to the overall market. High cyclical business activity would likely result in greater fluctuations in the company's earnings and, thus, stock price. High operating leverage means the firm incurs significant fixed costs, which also increases the variability of earnings and stock price. Therefore, when both conditions are present, it is more likely that the firm's beta will be high.

The Beta of a Firm Is More Likely to Be