Regressing the changes in profits at Bookscape against changes in profits for the S&P 500 yields the following:

Bookscape Earnings Change = 0.1003 + 0.7329 (S & P 500 Earnings Change) Based upon this regression, the beta for Bookscape is 0.73. In calculating this beta, we used net income to arrive at an equity beta. Using operating earnings for both the firm and the S&P 500 should yield the equivalent of an unlevered beta.

Technically, there is no reason why we cannot estimate accounting betas for Disney, Aracruz Cellulose and Deutsche Bank. In fact, for Disney, we could get net income numbers every quarter, which increases the data that we have in the regression. We could even estimate accounting betas by division, since the divisional income is reported. We do not attempt to estimate accounting betas for the following reasons:

1. To get a sufficient number of observations in our regression, we would need to go back in time at least 10 years and perhaps more. The changes that many large companies undergo over time make this a hazardous exercise.

2. Publicly traded firms smooth out accounting earnings changes even more than private firms do. This will bias the beta estimates downwards.

pearn.xls: This data set on the web has earnings changes, by year, for the S&P 500 going back to 1960.

Retirement Planning For The Golden Years

Retirement Planning For The Golden Years

If mutual funds seem boring to you, there are other higher risk investment opportunities in the form of stocks. I seriously recommend studying the market carefully and completely before making the leap into stock trading but this can be quite the short-term quick profit rush that you are looking for if you am willing to risk your retirement investment for the sake of increasing your net worth. If you do choose to invest in the stock market please take the time to learn the proper procedures, the risks, and the process before diving in. If you have a financial planner and you definitely should then he or she may prove to be an exceptional resource when it comes to the practice of 'playing' the stock market.

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