International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss

Beta Boot Camp: Teaching Students to Properly Apply Systematic Risk
Wayland T. Coppedge, Reinhold P. Lamb, James E. McCague

Beta can be a misunderstood and misused measure of risk, as there exists a large collection of beta values on various websites, like Yahoo!Finance, in published sources, like Value Line Investment Survey, and from news services, like Thomson Reuters and Standard and Poor’s. For finance students that may one day have clients of varying sophistication, the inconsistency in reported beta values can produce confusion for the client when trying to validate that the account is being managed properly. A scenario is presented whereby a client becomes disgruntled with a new advisor because it appears that the risk exhibited in the account is inconsistent with the client’s risk tolerance. A solution is offered that permits the advisor to educate the client about the interpretation of beta values, misunderstandings about published betas, and portfolio risk using the very example on which the client’s concerns are based.

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