On average 18,000 stocks listed at any point in time on any stock exchange in the world from 2002 to 2018.
Grouped the stocks into quintiles based on the level of beta. Highest betas would be in the top quintile, lowest beta would be in the bottom quintile.
Observed what happened to the average beta of these stocks over 10 years.
Past betas tend to regress towards 1.00x.
The beta you use for valuation is to infinity.
To avoid mistake we use three betas: High risk: 1.25x, Average risk: 1.00x, low risk: 0.75x.
If you use a beta outside of this range you have a higher obligation to justify.
