Research On Beta Characteristics And Estimation Of Weak Cyclic Industry Valuation

CAPM is considered as a classic model in business valuation. Furthermore, Beta, a significant parameter within CAPM, is frequently used for examining the relationship between the changes of respective stock price and the average stock price under the whole stock market. Additionally, Beta has another fundamental function of measuring the system risk. It has beenattached great importance by the domestic and international scholars. From the born of CAPM, researches of Beta have never stopped. Therefore, a large quantity of research findings has been cumulated. In light of literatures from the whole world, the current researches mainly focus on the stability and variability of Beta. Since Beta has the capacity of evaluating the risk, the result of business valuation is closely related to the stability of Beta. In other words, the Beta is highly essential to the business valuation. The weak cyclical industry is a kind of industry whose development has limited relations with macroeconomic factors. It includes two basic types. One type is called defensive industry which connects daily life closely including Food and Medical. Another relies on the advance of technology, such as Computer and Telecommunication. The weak cyclical industry plays an important role in the progress of national economy development. Consequently, the research of weak cyclical business valuation has been increasingly necessary for corporates’ development and investment strategy. Due to the smallsensitivity to macroeconomic factors,this dissertation will seek out whether the Beta of weak cyclical industry would be stable. Simultaneously, it will examine the effect of different calculation time period and yield rate interval to the stability of Beta in depth. Followed by a casestudy, the dissertation will analyze the influence of an unstable Beta on business valuation. Further,itwill find out the recommendations for the Beta calculation on weak cyclical industry so as to promote the accuracy of business valuation, which will also give a reference to the appraiserfor practical use.This dissertation will do empirical studies on the stability of Beta in Chinese weak cyclical industry by analysing the data from 2005 to 2014. Taking Medical, Textile and Apparel, Food, Media, Computer and Telecommunication as sample industries, it will use single index model to calculate Betas in diverse testing circumstances. Furthermore, the stability of Betaswill be verified by using White testing, Chow testing, CUSUMSQ testing, Wilcoxon testing and MAD values.Comparing the testing results under different calculation time period and different yield rate interval, this dissertation willanalyze the stability of the Beta synthetically. Next, quantitative analysis will be applied to measure the error of business valuation made by unstable Betas. The results indicate that:(1) the Beta of weak cyclical industry is less than 1 and the system risk is small;(2) prolong the calculation time period of Beta, it has a tendency of increasing;(3) the weak cyclical industry has unstable Betas;(4) the Beta under monthly-based yield rate is more stable than weekly-based;(5) the marked impact of variable Beta on business valuation can be concluded to the overprice of corporation. Based on the above conclusions, the dissertation will give relevant recommendations and put forward further research expectations.