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The relationship between selected market indices and individual securities using Sharpe's beta coefficient Chen, James C. L.

Abstract

This study attempts to determine the usefulness of Sharpe's Beta Coefficient in explaining the relationship between selected indices and individual securities. Basically, this involved doing a correlation-regression analysis on the returns of randomly selected securities against those of specific market indices. The returns for both variables were calculated traditionally, that is, by taking the price differential between the closing price at the end of the previous and present quarter and adding the quarterly dividend (where applicable) and dividing the total by the initial price. This was performed for six test periods. Generally, the tests yielded negative results. The amount of explained variation in individual security returns by the Beta Coefficient is negligible. This study concludes by providing some explanations and suggesting modifications.

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