upside beta

10 examples (0.02 sec)
  • Info In investing, upside beta is the element of traditional beta that investors do not typically associate with the true meaning of risk. more...
  • In other words, a stock with a high upside beta might generate the illusion of risk.
  • Upside beta is calculated using asset returns only on those days when the benchmark returns are positive.
  • In investing, dual-beta is a concept that states that a regular, market beta can be divided into downside beta and upside beta.
  • Downside beta and upside beta are also differentiated in the dual-beta model.
  • This is a major distinction that the CAPM fails to take into account, because the model assumes that upside beta and downside beta are the same.
  • The dual-beta model does not assume that upside beta and downside betas are the same but actually calculates what the values are for the two betas, thus allowing investors to make better-informed investing decisions.
  • The dual-beta model, in contrast, takes into account this issue and differentiates downside beta from upside beta, or downside risk from upside risk, and thus allows investors to make better informed investing decisions.
  • At the industry level, beta tends to underestimate downside beta two-thirds of the time (resulting in value overestimation) and overestimate upside beta one-third of the time resulting in value underestimation.
  • Though rarely the case, an investor facing two hypothetical stocks with same downside betas and identical mean returns would be better off selecting the stock with higher upside beta, since upside beta can be thought of as a representative of potential returns.
  • However, stock A's upside beta is larger than the upside beta of stock B. Stock A's CAPM beta will be larger than that of stock B, and thus stock A might be viewed by some investors as being more risky.