What does a Beta value greater than 1 signify for a stock?

What does a Beta value greater than 1 signify for a stock?

• A. The stock is less risky than the overall market
• B. The stock has volatility higher than the overall market
• C. The stock is expected to provide lower returns than the market
• D. The stock behaves independently of market movements

Answer: (B)

A Beta value greater than 1 indicates that the stock has volatility higher than the overall market. This signifies that if the market experiences a fluctuation, the stock is likely to experience a proportionally larger change in price. For example, if the market increases by 1%, a stock with a Beta of 1.5 would, on average, be expected to increase by 1.5%. This higher volatility means that investors might experience larger gains during bull markets, but they also face potentially greater losses in bear markets, making this stock riskier than the market overall. The other options reflect misconceptions about Beta. A value less than 1 suggests a stock is less volatile compared to the market, not greater. A Beta of greater than 1 does not inherently indicate expected returns relative to the market; it simply expresses the degree of volatility. Finally, a Beta of 0 would indicate that the stock behaves independently of market movements, which is not the case when the Beta is greater than 1. Thus, the significance of a Beta greater than 1 is inherently tied to the stock's increased volatility compared to the market.

A Beta value greater than 1 indicates that the stock has volatility higher than the overall market. This signifies that if the market experiences a fluctuation, the stock is likely to experience a proportionally larger change in price. For example, if the market increases by 1%, a stock with a Beta of 1.5 would, on average, be expected to increase by 1.5%. This higher volatility means that investors might experience larger gains during bull markets, but they also face potentially greater losses in bear markets, making this stock riskier than the market overall.

The other options reflect misconceptions about Beta. A value less than 1 suggests a stock is less volatile compared to the market, not greater. A Beta of greater than 1 does not inherently indicate expected returns relative to the market; it simply expresses the degree of volatility. Finally, a Beta of 0 would indicate that the stock behaves independently of market movements, which is not the case when the Beta is greater than 1. Thus, the significance of a Beta greater than 1 is inherently tied to the stock's increased volatility compared to the market.