
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?
X
Welcome to the Capital Asset Pricing Model forum. The topic being discussed here is: "Raw Beta vs Adjusted Beta".
Please sign up now to read all responses and to join this discussion yourself.
Log in


Ramon 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.




More on Capital Asset Pricing Model:






