used is the Athens Stock Index. This is a fairly conventional choice since most serv-
ices estimate betas against a local index. Based on this regression, we arrive at the
following equation.
The beta for Titan Cements, based upon this regression, is 0.93. The standard error
of the estimate, shown in brackets below, is only 0.08, but the caveats about narrow
indices apply to the Athens Stock Exchange Index.
Drawing on the arguments in the previous section, if the marginal investor in Titan
Cements is, in fact, an investor diversified across European companies, the appropri-
ate index would have been a European stock index. The Bloomberg beta calculation
with the MS European Index is reported in Exhibit 9.5. Note the decline in beta to
0.33 and the increase in the standard error of the beta estimate.
In fact, if the marginal investor is globally diversified, Titan Cement’s beta (as
well as Boeing’s beta in the previous illustration) should have been estimated against
a global index. Using the Morgan Stanley Capital Index (MSCI), we get the regres-
sion beta of 0.33 in Exhibit 9.6. In fact, the beta estimate and the standard error look
very similar to the ones estimated against the European index.
In short, regression betas will almost always be either too noisy or skewed by es-
timation choices to be useful measures of the equity risk in a company. The cost of
equity is far too important an input into a discounted cash flow valuation to be left to
statistical chance.
1 0.08 2ReturnsTitan Cement0.31%0.93ReturnsASE R squared57%9 • 18 VALUATION IN EMERGING MARKETSExhibit 9.4. Beta Estimate for Titan Cement: Athens Stock Exchange Index.