Discuss a Commonly Used Adjustment Technique to Provide an Adjusted

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The Answer is Over time, security betas move toward 1, as the average beta of all securities is 1 and variables regress toward the mean.Thus, if a historic beta has been greater than 1, the chances are that in the future, this beta will be less than the historic beta.The opposite relationship will be observed if the historic beta has been less than one.A commonly used adjustment technique would provide an adjusted beta of 2/3 (sample beta) + 1/3 (1).
Feedback: This question is important, as many published sources quote an "adjusted beta" with no explanation as to how such a number was obtained.The regression toward the mean is a valid statistical concept and it is important that the student understands that this concept represents the theory behind the possibly undocumented "adjusted betas."

Discuss a Commonly Used Adjustment Technique to Provide an Adjusted

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