Corporate Finance: Instructor\'s Manual Applied Corporate Finance

Aswath Damodaran 114

The Dirty Secret of “Standard Error”

Distribution of Standard Errors: Beta Estimates for U.S. stocks

0

200

400

600

800

1000

1200

1400

1600

<. 10. 10 -. 20. 20 -. 30. 30 -. 40. 40 -. 50. 50 -. 75 >. 75

Standard Error in Beta Estimate

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The standard errors of betas estimated in the US tend to be fairly high, with

many beta estimates having standard errors of 0.40 or greater. These betas

should come with warnings.