For the CAPM, there are several methods to calculate the Beta. In general, you can get the number through levered and unlevered formula from a group of peers that you selected. However, I would like to share another calculation of Beta that Bloomberg adopts.
- Get the historical price data of the selected equity and its corresponding index.
- Calculate the price changes percentage in each day.
- Use the “=Slope(”the column of price changes percentage of the equity”, “the column of price changes percentage of the index”)” formula in excel to get the rate of change along the regression line, which is the Beta of the equity.
- Adjusted the Beta by “2/3 * the Beta we calculated + 1/3” to reflect the tendency of Beta to be mean-reverting.
This is the way that Bloomberg adopted to calculate the adjusted Beta. However, minor differences exist due to the roundup.
