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Relationship between beta and stock returns

Relationship between beta and stock returns. Mayur Agrawal Varun Agrawal Debabrata Mohapatra Sung Kyun Park Vikas Yadav. Factor affecting stock returns. Beta alone cannot explain differences in stock-returns.

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Relationship between beta and stock returns

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  1. Relationship between beta and stock returns Mayur Agrawal Varun Agrawal Debabrata Mohapatra Sung Kyun Park Vikas Yadav

  2. Factor affecting stock returns • Beta alone cannot explain differences in stock-returns. • Other variables (e.g. size, book to market ratio, P/E ratio) have significant predictive ability. Ref: 1. Gabriel Hawawini, Donald B Keim, “The Cross Section of Common Stock Returns: A review of the evidence and some new findings” 2. Eugene E. Fama, Kenneth R. French, “ Common Risk Factors in the Returns on Stock and Bonds”

  3. Portfolio Development • Factors affecting stock returns • Stock Beta • Historical Stock Volatility • Market Capitalization • Price-to-book ratio

  4. Beta • Parameters: • Past data for Beta calculation = 5 years • Readjustment time = 1 year • Analysis Duration = Dec 3, 1991- Dec 3, 2008 • Relative Market Cap Weighted Return

  5. Volatility

  6. Portfolio allocation based on multiple parameters Sorting of stocks based on volatility

  7. Re-sorting of each bin of stock based on beta

  8. Volatility and Beta

  9. Market Capitalization Stock Price *Number of shares outstanding

  10. Market Cap and Beta

  11. Market Cap and Beta

  12. Beta portfolio subdivision

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