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Instructions Beta Computation NENT

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36 views2 pages

Instructions Beta Computation NENT

Uploaded by

Linus Ahlgren
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Beta Computation.

Introductions

The first assignment to the first case seminar is to estimate the beta of Nordic
Entertainment Group AB (NENT) (559124-6847).

In the assignment the group shall estimate the beta with three different methods:
- Covariance beta,
- Regression beta, and
- Bottom-up beta.
Further, with the first two methods the group should use both monthly and weekly data,
respectively.
Covariance and Regression Beta

Estimating beta with the first two methods, you need the stock price and index price. So the
first step is to gathering the price data for NENT and the index you chose. The task could be
performed in the following steps:

1. Download price data from a database. For example Eikon (the database is on the
terminals in the basement of House 15). The price data you need is:

- NENT’s stock price


- Price of relevant price index
Also ensure that you download data with dividend adjustment.
For the monthly data you should use data of 2, 3 and 5 years, and for the weekly data use
data also for 2, 3 and 5 years.
2. Arrange your data so that the oldest data point is listed first. E.g., if your NENT stock price
data are between February 2016 and January 2021, then the stock prices for February 2016
must be in Excel cell A1. Make sure the data of NENT and your chosen market index proxy
are for the same period. The price index data is put in column B.
3. Convert the stock price and price index into returns. You may either use (Pt – Pt-1)/ Pt-1 or
the natural log differences. The task is performed on both NENT’s stock price and the price
of the price index. Put the result (the returns) of NENT’s stock in Column C and the result
(the returns) of the price index in column D.

NOTE: You cannot use the raw price index data to estimate your beta. The results obtained
would not be appropriate.
4. To estimate the monthly regression for 5 years use the following formula (in Excel):

=COVARIANCE.P(C1:C60,D1:D60)/VAR.P(D1:D60)
5. To estimate the slope beta (monthly) use the following formula (in Excel)

=SLOPE(C1:C60,D1:D60)

You will arrive at the same figure using both of these methods.

Bottom Up Beta

In estimating the bottom up beta you have to find 4-5 listed competitors (or companies with
the same operational risk).
The bottom-up beta may be estimated in the following steps:
1. First collect data on the competitors: levered beta, D/E and tax rate.
2. Then estimate the unlevered beta of the competitors. Look at the formula sheet.
3. Take an average of the unlevered beta of the competitors. This unlevered beta will
be the unlevered beta of NENT.
4. Use the unlevered beta you receive in step 2 to estimate the levered beta of NENT.
Look at the formula sheet. Here you need the D/E of NENT and the Swedish tax rate.

Good luck
Tor Brunzell

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