From the course: Finance Foundations
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Beta: Examples
- Let's discuss some real beta examples. If you are fearful of your job, if the economy is going down, you're fearful of a recession, then you are not going to run out and buy a new car. But then, when the economy goes back up, lots of people want to buy cars. They've got this pent up demand. That relation is reflected in a high beta. Consider Bank of America. Banks, especially large banks, have started engaging in more risky behavior. They're selling derivatives, they're trading derivatives, and collateralized debt instruments, and mortgage backed securities, which all sounds very exotic and scary and it is scary. Because what it has done is this: when the broad economy is doing well, large banks, such as Bank of America do great. When the economy goes down, these banks get killed. They get hammered. They have a large beta risk. When the economy goes up a little, the prospects for these banks go up a lot. Now let's consider companies with beta around one. Google, Microsoft, and Apple…
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