The Effect of Common Stock Beta Variability on the Variability of Portfolio Beta

Abstract

ThP. tit l P. of thP. stll<iy is "1'hP. P.ffP.r.t of c;ommon stoc;k hP.t r:l variability on the variability of the portfolio betau. A detailed literature review was conrlucted anrl an extension to thP. previous resea.rches, seconda.ry da.ta. wa.s collected in the form of five year daily return tape of stock prices of forty companies . The stocks to be included in the study for the purpose of research have no missing observation and are most tra.ded in thP. stock P.xcha.nge. ThP. rela.tionship bP.tween the variability of individual stock betas and the variability of small portfolio betas is tested . Stocks are comhined into small portfolios using two measurP.s of beta va.riability, the sta.ndArd devia.tion of beta. a.nd the coefficient of variation of beta . Further the Spearman correlation and regression tests are applied . The following results Are managers of small portfolios : beta variability cannot be of pa.rticulAr interest to (l) minimization of portfolio achieved by combining stocks which, individually, stocks with low variability . have low beta variability, anrl (?) hAvP. greAter rP.lAtivP. bP.tA