Quant · Core
Beta
Beta is the regression slope of an asset’s return on a factor (usually the market) — a hedge ratio, not a destiny.
Definition
β = Cov(r, r_m) / Var(r_m). High beta means more market. Estimated betas move with the window, the frequency, and the index. Downside beta and bull beta are not the same number.
Why it matters
Index hedges, CAPM costs of equity, and ‘defensive’ labels all use it. A 1.2 beta is a statement about the last sample.
Case
A tech name with trailing beta 1.4 into a rate shock. The next year’s beta to the index was 1.8 because the index became tech. The sample was the risk.
How to read it
Window, index, and whether you want OLS, shrinkage, or fundamental beta. Then stress it; do not tattoo it.
Key papers
Landmark references with real publisher or arXiv links — not token-overlap noise.
- Capital Asset PricesSharpe · 1964 · Journal of FinanceBeta in the CAPM.
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