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The Capital Asset Pricing Model - Beta

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Research suggests that the mining sector had a beta of 1.7 while utility companies had a beta of 0.5. Can you explain why there is a difference given beta is determined by cyclicality of revenues, operating and financial leverage?

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The solution explains why there is a difference in betas for mining and utility companies.

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Research suggests that the mining sector had a beta of 1.7 while utility companies had a beta of 0.5. Can you explain why there is a difference given beta is determined by cyclicality of revenues, operating and financial leverage?
Solution:
Beta measures the systematic risk or the risk that is non-diversifiable. Higher the systematic risk, higher is the beta and lower the systematic risk, lower is the beta. The ...

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Radhika Lakshmi, MPhil
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  • MPhil, Madurai Kamaraj University
  • MCom, Annamalai University
  • IATA, International Air Transport Association
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