A Big Picture View of Betas

When we talk about unlevered betas, we are talking about the betas on the asset side of the balance sheet. These betas are also referenced as business betas, asset betas or pure play betas. The beta for equity is always a levered beta, reecting the risk of the businesses you are in and the magnifying effect of debt.

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In the bottom up beta approach; a. You take a value-weighted average of the business betas to get to a beta for the rm. b. You then lever up that beta using the D/E ratio for the rm.

When you run a regression of stock returns against a market index, you are getting an equity beta. However a. That beta estimate is noisy b. Reects the businesses you were in over the regression period. c. The average D/E ratio in the regression

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