Economic Analysis: Theory and Practice

Abstracting and Indexing

Referativny Zhurnal VINITI RAS
Google Scholar

Online available



Cyberleninka (12 month OA embargo)

Conditions for using different types of adjusted beta to calculate return on assets

Vol. 17, Iss. 9, SEPTEMBER 2018

Received: 16 April 2018

Received in revised form: 22 May 2018

Accepted: 9 July 2018

Available online: 28 September 2018


JEL Classification: G11, G12, G18, G32

Pages: 1781–1796

Zozulya V.V. Bauman Moscow State Technical University, Moscow, Russian Federation

Korolev S.A. Bauman Moscow State Technical University, Moscow, Russian Federation

Importance The article reviews different methods for beta estimation applied in the capital asset pricing model, which have been offered for the recent fifty years.
Objectives The study aims to consider the existing methods to calculate beta coefficient and set the boundaries of their application to compute the expected return on equity of Russian companies.
Methods The study uses general scientific methods of cognition, like retrospective and comparative analysis, synthesis, induction and deduction.
Results We examined existing trends in beta modification and initial limitations inherent in each model. Based on the conducted research, we offer recommendations on the choice of methods to calculate beta, depending on size and type of companies.
Conclusions The analysis shows that under the modern economy, the calculation of beta coefficient according to the traditional formula proposed by William Sharpe does not provide reliable results. To obtain adequate estimates of return on equity of small and medium-sized public companies, the lagged beta should be used. As for large companies issuing bonds, the calculations should consider the capital structure by using the model proposed by Peter Monkhouse. The results of the study may help value the business of Russian companies under the income approach.

Keywords: capital asset pricing model, adjusted beta, lagged beta, levered beta, portfolio beta


  1. Podkopaev O.A. [Methods and Approaches to the Calculation of the Beta Coefficient to Determine the Rate of Discounting of Financial and Real Investment]. Mezhdunarodnyi zhurnal prikladnykh i fundamental'nykh issledovanii = International Journal of Applied and Fundamental Research, 2015, no. 3, pp. 245–249. (In Russ.)
  2. Roll R. A Critique of the Asset Pricing Theory's Tests. Part I: On Past and Potential Testability of the Theory. Journal of Financial Economics, 1977, vol. 4, iss. 2, pp. 129–176. URL: Link90009-5
  3. Glagoleva L.A. [Interest Rate as a Characteristic of Return on Equity in the Capital Asset Pricing Model]. Ekonomicheskii vestnik Rostovskogo gosudarstvennogo universiteta = Economic Bulletin of Rostov State University, 2008, vol. 6, no. 3, part 2, pp. 32–37. (In Russ.)
  4. Damodaran A. Estimating Risk Parameters. New York, Stern School of Business, 1999, 31 p. URL: Link
  5. Nawrocki D.N. Optimal Algorithms And Lower Partial Moment: Ex-post Results. Applied Economics, 1991, vol. 23, iss. 3, pp. 465–470. URL: Link
  6. Bawa V.S., Lindenberg E.B. Capital market equilibrium in a mean-lower partial moment framework. Journal of Financial Economics, 1977, vol. 5, iss. 2, pp. 189–200. URL: Link90017-4
  7. Harlow W.V., Rao R.K.S. Asset Pricing in a Generalized Mean-Lower Partial Moment Framework: Theory and Evidence. The Journal of Financial and Quantitative Analysis, 1989, vol. 24, iss. 3, pp. 285–311. URL: Link
  8. Scholes M., Williams J. Estimating betas from nonsynchronous data. Journal of Financial Economics, 1977, vol. 5, iss. 3, pp. 309–327. URL: Link90041-1
  9. Hamidreza V.F., Amin B.F. A New Modified CAPM Model: The Two Beta CAPM. Jurnal UMP Social Sciences and Technology Management, 2015, vol. 3, iss. 1, pp. 343–346.
  10. Fowler D.J., Rorke H.C. Risk Measurement when shares are subject to infrequent trading: Comment. Journal of Financial Economics, 1983, vol. 12, iss. 2, pp. 279–283. URL: Link90039-9
  11. Miller S.M. Non-Synchronous Trading Bias Seems to Vary Across Countries and Over Time. URL: Link
  12. Hamada R.S. The Effect of the Firm's Capital Structure on the Systematic Risk of Common Stocks. The Journal of Finance, 1972, vol. 27, iss. 2, pp. 435–452. URL: Link
  13. Brusov P.N., Filatova T.V., Orekhova N.P. [Absence of Optimum Structure of the Capital in Modigliani–Miller's Modified Theory]. Vestnik Finansovogo universiteta = Bulletin of Financial University, 2013, no. 2, pp. 52–64. (In Russ.)
  14. Conine T.E.Jr. Corporate Debt and Corporate Taxes: An Extension. The Journal of Finance, 1980, vol. 35, iss. 4, pp. 1033–1037. URL: Link
  15. Miles J.A., Ezzell J.R. Reformulating Tax Shield Valuation: A Note. The Journal of Finance, 1985, vol. 40, iss. 5, pp. 1485–1492. URL: Link
  16. Butler K.C., Mohr R.M., Simonds R.R. The Hamada and Conine Leverage Adjustments and the Estimation of Systematic Risk for Multisegment Firms. Journal of Business Finance & Accounting, 1991, vol. 18, iss. 6, pp. 885–901. URL: Link
  17. Armitage S. The Cost of Capital: Intermediate Theory. Cambridge, Cambridge University Press, 2005, 353 p.
  18. Monkhouse P.H.L. Adapting the APV valuation methodology and the beta gearing formula to the dividend imputation tax system. Accounting and Finance, 1997, vol. 37, iss. 1, pp. 69–88. URL: Link
  19. Perevozchikov A.G. [A Stochastic Model of Constant Growth to Estimate Beta Coefficients for Nonquoted Instruments]. Finansy i kredit = Finance and Credit, 2005, no. 1, pp. 9–11. URL: Link (In Russ.)
  20. Guseinov B.M. [Problems of Beta Calculation When Evaluating the Cost of Equity under the CAPM Method for Russian Companies]. Finansovyi menedzhment = Financial Management, 2009, no. 1, pp. 76–83. (In Russ.)
  21. Rubinstein M.E. A Mean-Variance Synthesis of Corporate Financial Theory. The Journal of Finance, 1973, vol. 28, iss. 1, pp. 167–181. URL: Link
  22. Bornholt G. Extending the capital asset pricing model: The reward beta approach. Accounting and Finance, 2007, vol. 47, iss. 1, pp. 69–83. URL: Link
  23. Belov S.B. [Analysis of Using the Beta Coefficient as a Means of Systematic Financial Risk Assessment]. Trudy Dal'nevostochnogo gosudarstvennogo tekhnicheskogo universiteta, 2004, no. 138, pp. 43–44. (In Russ.)
  24. Solov'ev A.A. [Cost of the company's equity: Comparative analysis of the capital asset pricing model (CAPM) and the arbitrage pricing model (APM)]. Ekonomika i upravlenie v XXI veke: tendentsii razvitiya = Economics and Management in the Twenty-First Century: Development Trends, 2012, no. 4, pp. 160–164. (In Russ.)
  25. Luk'yanov K.A. [Methods to estimate beta coefficient on the Nornickel case]. Sovremennye tendentsii razvitiya nauki i tekhnologii = Current Trends in Science and Technology, 2015, no. 9-6, pp. 87–92. (In Russ.)

View all articles of issue


ISSN 2311-8725 (Online)
ISSN 2073-039X (Print)

Journal current issue

Vol. 18, Iss. 2
February 2019