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Prakash Kamathia
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While calculating cost of equity via CAPM method, which beta one should use. Raw beta or adjusted beta and why? (...) Read more? Sign up for free
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Ramon
Consultant, Spain
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Raw Beta vs Adjusted Beta
In my modest opinion, it is better to adjust the raw beta that arises from the division of the asset return covariance with market by the market return variance. Frequent adjustments are:
(1) towards beta=1, and
(2) to take into account the effect of the leverage of the company (relevered beta).
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andres elorza
Student (University), Colombia
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Raw Beta versus Adjusted Beta
The cost of equity calculated with the raw beta will give you a cost of equity without the risk of the debt, in other words, it will give you the cost of equity of a unleveraged firm.
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