Your friend uses the following adjustment for the regression-based beta:

 

Beta = regression-based beta × (2/3) + 1 × (1/3). 

 

The second term on the right-hand side of the equation (i.e., 1 × (1/3)) is based on the idea that the best forecast of beta for any stock is the market beta of 1. 

 

Question :

To discuss possible change(s) that the adjustment for beta may bring to the empirical evidence of "low beta bias" documented in the literature. 

Answer rating: 100% (QA)

The beta is reflection of systematic risk associated with an investment and it will be reflecting th... View the full answer