To Beta or Not to Beta: A Comparison of Historical Versus Fundamental Betas for Hedging Market Risk

Jul 1, 2007

Fundamental betas provide several conceptual advantages to historical betas--they reflect information on a timelier basis and are less likely to confuse noise for information. This paper revisits the advantages of using fundamental beta for hedging systematic risk in the U.S. Fundamental beta appears to be a more consistent measure for hedging market risk, particularly for investors who care about downside risk and tail risk.