Bodie Marcus INVESTMENTS Fourth Edition luRRy Prediction or Be Merrill lynch example Use returns not risk premiums a has a different interpretation =a+r(1β) a Forecasting beta as a function of past beta a Forecasting beta as a function of firm size growth, leverage etc Irwvin/McGrazo-Hill The McGraw-Hill Companies, Inc, 1999Irwin/McGraw-Hill 10-14 © The McGraw-Hill Companies, Inc., 1999 INVESTMENTS Fourth Edition Bodie Kane Marcus Industry Prediction of Beta Industry Prediction of Beta „ Merrill Lynch Example - Use returns not risk premiums −α has a different interpretation −α = α + rf (1-β) „ Forecasting beta as a function of past beta „ Forecasting beta as a function of firm size, growth, leverage etc