is it possible to use beta to measure the efficiency of the market?
Am doing my dissertation now and the topic relates to EMH. Coz I found beta is also a potential factor to interpret the market efficiency since it shows the volatility of the equity toward the market index. Here is what I link them together: if a stock is very volatile (beta>1, the movement can be up or down) that there is a lot of new information being made available and the market is adjusting to it. As far as i’ve done, I calculated the past and present beta within 2 years and compared them but the result provided an unclear answer because there is not much difference between the two value showing that the beta changed within 2 years. And now I dont know how to continue to interpret them to test the efficiency of the market. I tried to find some previous studies but non of them really related to wat am looking for. could anyone pls help me out of this situation, I just wanna know is there any percent of success that I can move on with this topic and how? How beta can become a factor to measure the market efficiency? Thank a lot.
Comments
sure if you think so
September 9th, 2010 at 12:59 am
Beta is a measure of a security’s volatility in relation to the market. The problem is that different firms calculate Beta by different measures (apparently there are wide differences in what firms use as "the market", which causes a majority of the variance). The beta may not be changing because of the time period the firm is using for comparisons. For instance, when you look at GE’s beta in 2007 the firm may be comparing the price to market from 1900-2007 to get the beta, when you look again in 2009 the period may have changed from 1900-2009… expect to see much of a shift in Beta? I don’t know, and firms don’t often publish their exact Beta formula they use.