Assume each firm within an industry has similar operations and financial structu

Question

Assume each firm within an industry has similar operations and financial structures as the industry as a whole. Which one of these statements related to beta is correct given this assumption?

Industry betas are less reliable than firm betas.

Firms should use their own betas rather than the industry beta.

Betas should be computed on an annual basis.

The error in beta estimation for a single security exceeds the error for a portfolio of securities.

All firms in the industry will have the same beta.

Explanation / Answer

All firms in the industry will have the same beta.

Those companies that have operations quite different from a large number of companies in the industry may stick to the use of their own betas rather than the industry beta.

As the operations and financial structure is similar all the firms would have the same beta.

Hence, the correct option is E.

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