Market Fundamental and Accounting Betas Which one do we use

For most publicly traded firms, betas can be estimated using accounting data, market data or from fundamentals. Since the betas will almost never be the same, the question then becomes one of choosing between these betas. We would almost never use accounting betas, for all of the reasons specified above. We are almost as reluctant to use historical market betas for individual firms because of the standard errors in beta estimates, the failures of the local indices and the inability of these regressions to reflect the effects of major changes in the business and financial risk at the firm. Fundamental betas, in our view, provide us with the best beta estimates because they are not only more precise (because of the averaging) but also because they allow us to reflect changes in business and financial mix. In summary, we will use the fundamental estimates of equity betas of 1.25 for Disney, 0.82 for Bookscape, 0.70 for Aracruz and 0.98 for Deutsche Bank.

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