Adjusting β Of Listed Company Based On Capm

βused to evaluate and estimate the risk of security is an important parameter in investment management, risk control and income forecast. It shows how much one asset was affected by average price in the market.βas a measure index for system risk based on CAPM plays an important role in theory and practice.βas a main measure index for system risk became one of hot points in the theories of capital price and research activities.The significant discovery ofβbased on CAPM changed the finance theories, even promoted the development of other economic theories in the following years. It had been proved thatβshows how much one asset could be affected by the market by the theories and practice. In the developed countries like USA and Japan, the famous organizations like S&P and Dow-Jones Average publishβparameter of companies to every investor to make their decision. On the security market,βis necessary information in invest management and achievement evaluation besides it shows system risk. It is a very important parameter in security pricing model. So the research and exactly evaluation ofβis very significant, no matter in theories or practice.No matter how exact theβis, it contains some estimate error for two reasons: instability of stock income and some stock price changing behind others results in statistical error. Besides,βis calculated based on the past data, while the environment and the company is changing all the time. So adjustedβis more reasonable and can be used to help us to make invest decision.Risk known as the definition in finance is measured by the difference between the real rate and the anticipate rate. We use these differences to measure the risk faced to help make our decision. The greater the difference is, the higher the risk is. Well this risk can be divided to tow parts: system risk which can affect all of the investment and investors; especial risk which only affects one or some invertors and investment activities. Investors can reduce their especial risk level by scattering their money or asset on one premise the scattering investment is reasonable and feasible. So we get the conclusion: just only the system risk can be measured byβin CAPM.βis essentially measured by how much risk one asset add upon the investment market assembled. It was proved clearly in math. Just for this reason,βhas the trend to close to the market average value, because investment market assembled has one attribute that is close to 1. So this attribute can affect the precision ofβ. Theβparameter is far away from 1, the effect is greater. So we can say thatβcalculated through CAPM has an attribute close to the average value of the whole market.For this reason, this paper"Adjustingβof Listed Company Based on CAPM"tries to reduce the effect by market average value to get more exactβparameter. This paper combined theory research and demonstration analysis according to the clue of"Adjustingβ".The paper contains four chapters:The first chapter is a department of introduction. This part introduced the importance ofβfrom two aspects, risk measurement and application ofβin evaluation activities. Then it introduced the unadjustedβand adjustedβaccording to the kinds of risk companies facing. Later paper described the way and tools to adjustβparameter, and gave the factors needed to be considered. It shows the structures and logical frame at the end of this chapter to make reading easily.The second chapter explained the origin ofβparameter. We usually use two indexes to measure risk, average and square error based on the risk definition divided into two kinds, system risk which can be scattered and especial risk which can not be scattered. Later, this part supplied the way to scatter the system risk through scattering investment which was proved and explained from intuition and statistic. CAPM which was developed from Harry M.Markowitz theories connectedβand anticipated income. Harry M.Markowitz theories supplied the efficient aggregate through equal anticipate rate line and equal square-error ellipse. Well after this paper explained two lines, CML which means capital market line and SML which means security market line. At the end of this chapter, it shows the proved process aboutβin math, through which we understand the essence ofβparameter how much risk one asset add upon the investment market. After these, this chapter gave clear explanation from statistics and economics.The third chapter is about adjustingβand its demonstration analysis. At the beginning of this chapter, it explained three reasons including theory reason, statistical reason and realistic reason to adjustβparameter. Then it built three index containing industry adjusting index, organizing lever index and financial lever index to adjustβ. Every index had its theory explanation and demonstration analysis. While at the end of every index, paper supplied a summary to review the content upon, gave application situation and suitable conditions of it. The writer cited a model for the finance lever index, but offered personal viewpoint and gave its suitable conditions.The fourth chapter is the conclusion part. This part reviewed all of the contents upon. Then it gave the innovation and disadvantages. Its innovation contained building two indexes to reduce an attribute ofβclose to average and gave their application conditions. The third index was cited, but the writer gave his own viewpoints. Its disadvantages contained as follows:(1) Adjustedβcan be used in some especial conditions;(2) Can not measure how much we can reduce the effect close to average;(3) It needs a long time to validate its correction or fault;(4) The sample of organization lever index contained few data for some reasons;...