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Beta Book Project: Estimate Firm and Industry Beta: BM6xxx2: Corporate Finance A. Chandra, 2021

1. The document provides guidelines for estimating the beta of firms and industries for a group assignment. 2. Each group will identify a minimum of two firms from the same industry, one core firm and one peer firm, to estimate daily and weekly betas. 3. Students will obtain price data for the sample firms and indices, compute returns, and estimate equity beta using daily and weekly regressions to determine the best beta for each firm.

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Rumani Chakraborty
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60 views

Beta Book Project: Estimate Firm and Industry Beta: BM6xxx2: Corporate Finance A. Chandra, 2021

1. The document provides guidelines for estimating the beta of firms and industries for a group assignment. 2. Each group will identify a minimum of two firms from the same industry, one core firm and one peer firm, to estimate daily and weekly betas. 3. Students will obtain price data for the sample firms and indices, compute returns, and estimate equity beta using daily and weekly regressions to determine the best beta for each firm.

Uploaded by

Rumani Chakraborty
Copyright
© © All Rights Reserved
Available Formats
Download as PDF, TXT or read online on Scribd
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Beta Book Project: Estimate firm and industry beta

BM6xxx2: Corporate Finance

«A. Chandra, 2021


The beta book assignment requires students to estimate the beta of a firm and the industry beta. This will
be a group assignment; each group can have 2-4 members and will work on unique set of firms belonging to an
industry/sector.

Brief guidelines:
1. Each group will identify a set of a minimum of two firms from an industry, one core firm and one peer
firm. Maximum number of firms shall be equal to the number of students in a group.

ˆ Make sure no two (or more) groups work on same firm/set of firms.
ˆ The industry/sector for which each group shall be working has been assigned by the faculty (See
the email ).

2. Obtain daily and weekly adjusted closing prices for each firm from both BSE and NSE for a period of
one (most recent) financial year.

3. Obtain daily and weekly closing values of Sensex (BSE) and Nifty (NSE) indices for the same period.

4. Compute daily and weekly return for both firms and indices.

5. Estimate equity beta for each sample firm with both daily and weekly data.

ˆ You get four betas for each sample firm, namely βDaily
BSE , β BSE , β N SE , and β N SE .
W eekly Daily W eekly

6. Estimate the best beta for all sample firms.

7. Compare the best beta with the implied beta (also known as unlevered beta) for respective firms and
compute industry beta accordingly.

8. Suggest the cost of unlevered equity for the sector.


Deliverables (in a SINGLE spreadsheet with multiple worksheets, ref. Note # 6 below):
1. Best beta for each sample firm,

2. Unlevered beta for each sample firm,

3. Average unlevered equity beta for the industry/sector, and

4. Cost of unlevered equity for the sector.


Notes:
1. Unlevered beta of a firm can be computed using average debt-equity ratio of the firm;

2. Unlevered beta = Best beta ÷ [1 + ((1 - Tax rate) × Debt-equity ratio)]

3. Make appropriate assumptions regarding tax rate or anything else if required;

4. Entire assignment shall be submitted in a single Excel file which might contain multiple worksheets.

5. Show all interconnected functions properly.

6. Arrange the worksheets in the order of: (a) Daily Prices, (b) Daily Returns, (c) Weekly Prices, (d) Weekly Returns,
(e) Daily Regressions, (f) Weekly Regressions, (g) D-E Computations, and (h) Main Worksheet (where the summary
of the entire beta estimation exercise along with required statistics shall be presented).

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