PPT Slide

• Fundamental betas are adjusted further to include changes in a company’s fundamental factors over time such as leverage, sales volatility, etc. Adj. b = 0.33(Hist. b) + 0.67(1.0)Fund. b = f(Hist. b, 1.0, leverage, etc.)

• Both attempt to overcome the problem that historical betas measure past market risk while investors are interested in future market risk.

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