Which of these are determinants of beta?
I.Financial leverage
II.Cyclicality of revenues
III.State of the economy
IV.Operating leverage

Question

Quizplus · Accepted Answer

Beta is calculated as the covariance of the asset's returns with the market returns, divided by the variance of the market returns. The determinants of beta are factors that affect the covariance of asset returns with market returns. Financial leverage, operating leverage, and cyclicality of revenues all affect the degree of covariance of an asset's returns with the market returns. The state of the economy, however, affects both the asset returns and the market returns, and therefore does not directly determine beta. Hence, the correct options are I, II, and IV.

Which of These Are Determinants of Beta