How Beta Got Her Groove Back

Michael Johnston — Thu, 07 May 2009 05:02:48 +0000

It’s been almost 17 years since two economists at the University of Chicago, Eugene Fama and Kenneth French, published an attack on the stock price measure of risk known as “beta,” prompting “Beta is Dead” headlines from numerous financial publications. While these obituaries may have been a bit premature (beta is still widely taught in university finance courses and widely accepted in the business valuation field), the groundbreaking article caused some irreparable damage to beta’s reputation. Now, with the recent surge in popularity of ETFs, beta has been reinvented as a metric for evaluating and comparing the efficiency of funds. A Quick Refresher For those far removed from their Finance 101 days, beta is a component of the Capital Asset Pricing Model (CAPM for short), one of the most influential theories in financial economics. Beta reflects the relative volatility of a stock – how much the price of an individual security moves up [...]

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How Beta Got Her Groove Back

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