How do you calculate beta coefficient in economics?

Answer 1

The beta coefficient in economics measures the sensitivity of a security's returns to the overall market returns, often used in the Capital Asset Pricing Model (CAPM). It is calculated by regressing the returns of the security against the returns of the market over a specific period. The formula is: ( \beta = \frac{\text{Cov}(R_{\text{security}}, R_{\text{market}})}{\text{Var}(R_{\text{market}})} ), where Cov is the covariance and Var is the variance. A beta greater than 1 indicates higher volatility than the market, while a beta less than 1 indicates lower volatility.