Beta

What it means

The sensitivity of an asset’s return to the market’s return — its share of systematic risk.

The exam angle

A beta above one amplifies market moves in both directions. Estimated betas are unstable and are often adjusted toward one.

Where it appears in the syllabus

• Portfolio ConstructionCFA Level I · exam weight 8–12% · Risk and return, the CAPM, IPS construction, behavioural biases.
• EquitiesCFA Level I · exam weight 11–14% · Market organisation, indexes, industry analysis, dividend models.
• Foundations of Risk ManagementFRM Part I · exam weight 20% · Risk taxonomy, governance, CAPM, multifactor models, financial disasters.

Related terms

• Capital asset pricing modelA model stating that an asset’s expected return equals the risk-free rate plus beta times the equity risk premium.
• DiversificationCombining imperfectly correlated assets so that portfolio risk falls below the weighted average of the individual risks.
• Market efficiencyThe proposition that prices already reflect available information, so consistently beating the market on that…
• Market-capitalisation-weighted indexAn index in which weights are proportional to constituents’ market values.
• Required rate of returnThe minimum return an investor demands for holding an asset, given its risk.
• Sharpe ratioExcess return over the risk-free rate, per unit of total risk.