Raw Beta vs Adjusted Beta

Capital Asset Pricing Model
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Prakash Kamathia, India

Raw Beta vs Adjusted Beta

While calculating cost of equity via CAPM method, which beta one should use. Raw beta or adjusted beta and why?


Consultant, Spain

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).

andres elorza
Student (University), Colombia

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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