Asset beta and equity beta

Asset beta equity beta - If a refers to the investment and b refers to the market, it now becomes clear that the interpretation of beta as 'the volatility of an investment relative to the market volatility' is inconsistent with how beta is calculated; this is due to the presence of the correlation in the above formula. Beta fails to allow for the influence that investors themselves can exert on the riskiness of their holdings through such efforts as proxy contests, shareholder resolutions, communications with management, or the ultimate purchase of sufficient stock to gain corporate control and with it direct access to underlying value. According to the model, the expected return on equity is a function of a firm's equity beta (βe) which, in turn, is a function of both leverage and asset risk (βa):{\displaystyle k_{e}=r_{f}+\beta _{e}(r_{m}-r_{f})}. Definition, the market itself has a beta of 1, and individual stocks are ranked according to how much they deviate from the macro market (for simplicity purposes, the s&p 500 is sometimes used as a proxy for the market as a whole).

7.Weighted Average Cost of Capital - What is Asset & Equity Beta

WACC with respect to advance financial management and how to compute WACC of business,which is diversifying or already ...