Question

UPSC Prelims 2023 Question:

In the context of finance, the term 'beta' refers to

1. the process of simultaneous buying and selling of an asset from different platforms
2. an investment strategy of a portfolio manager to balance risk versus reward
3. type of systemic risk that arises where perfect hedging is not possible
4. a numeric value that measures the fluctuations of a stock to changes in the overall stock market

Answer (Detailed Solution Below)

Option 4: a numeric value that measures the fluctuations of a stock to changes in the overall stock market

Detailed Solution

Explanation:

Beta is a measure of a stock's historical volatility in comparison with that of a market index such as the S&P 500. Stocks with a beta above 1 tend to be more volatile than their index, while stocks with lower betas tend to be less volatile.

Therefore, option (4) is the correct answer.

Subject: Economics | Financial Sectors and Capital Market

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