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Case
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Reference no. UVA-QA-0453
Authors: Samuel E Bodily
Published by: Darden Business Publishing
Originally published in: 1994
Version: 25 March 2014
Revision date: 16-Apr-2014

Abstract

An account executive has the task of calculating a beta value for three stocks of interest to an important client, based on five years of monthly total returns. The client is interested in these beta values as measures of the riskiness of the three investments. This case is best used near the beginning of a module on regression. It focuses on the simple linear regression model relating equity returns to market returns. This use of regression (to calculate a stock's beta) is very common in financial analyses and will be seen by the students in other courses. The case serves to clarify the distinction between systematic and unsystematic risk and between R-squared and the standard deviation of residuals as measures of forecasting uncertainty.

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Abstract

An account executive has the task of calculating a beta value for three stocks of interest to an important client, based on five years of monthly total returns. The client is interested in these beta values as measures of the riskiness of the three investments. This case is best used near the beginning of a module on regression. It focuses on the simple linear regression model relating equity returns to market returns. This use of regression (to calculate a stock's beta) is very common in financial analyses and will be seen by the students in other courses. The case serves to clarify the distinction between systematic and unsystematic risk and between R-squared and the standard deviation of residuals as measures of forecasting uncertainty.

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