Risk Latte - The Beta Cult!

The Beta Cult!

Rahul Bhattacharya
May 03, 2005


Beta, the magic number that tells the analyst and the investor how risky a stock is vis-à-vis the market came into high fashion in the early 1970s. The Institutional Investor, the glossy prestige magazine that spent most of its pages chronicling the accomplishments of professional money managers puts its imprimatur on the movement in 1971 by featuring on its cover the letters BETA on top pf a temple and including as its lead story "The Beta Cult! The New Way to Measure Risk".1

The magazine noted that money men whose mathematics hardly went beyond long division were now "tossing betas around with the abandon of Ph.D.s in statistical theory".2

Today, day in and day out analysts and investors use betas to capture the risks inherent in stocks. Beta sounds so much friendlier than standard deviation, correlation, and covariance. And then there is alpha, gamma, theta, vega and all the Greek alphabets.and they are all, in one way or the other measures of risk.


(Taken from: A Random Walk Down Wall Street by Burton G Malkiel).
1Quoted Ad Verbatim from A Random Walk Down Wall Street, by Burton G Malkiel (page 230)
2Quoted Ad Verbatim from A Random Walk Down Wall Street, by Burton G Malkiel (page 230)

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