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Estimating Foreign-Stock Beta with Local-Currency Market Returns

Article Quant Q&A · Author: Ernani Mercadante
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Summary

The document asks which market benchmark Yahoo Finance uses when calculating beta for stocks listed in foreign markets, and whether the benchmark is local or the US S&P 500. The response offers a methodological recommendation rather than a confirmed description of Yahoo’s process: estimate beta by regressing the stock’s total returns, including dividends, against the relevant domestic market index.

Returns should be measured in the local currency when analyzing the local listing, rather than using USD-denominated returns for an American depositary receipt. The answer names country-specific benchmarks as examples, but notes that Yahoo does not appear to document its calculation. Consequently, the document cannot establish how Yahoo actually computes or labels foreign-stock beta; it only outlines a locally grounded approach for an independent estimate.

Key ideas

  • A foreign stock’s beta can be estimated relative to its domestic market index.
  • The suggested regression uses total returns that include dividends.
  • Local-currency returns are recommended for the local listing rather than USD ADR returns.
  • The document does not confirm which benchmark Yahoo Finance actually uses.

Tags

EquitiesStatisticsRisk management
Full text
# Yahoo Finance Beta Calculation - foreign stock


# Yahoo Finance Beta Calculation - foreign stock












How does Yahoo Finance calculate Beta for stocks quotes in foreign markets? Does it consider the volatility against local markets indexes or US S&P 500?

## Answer by Dimitri Vulis (score 1)

https://quant.stackexchange.com/a/59010

A "correct" way would be to use each country's index, such as DAX for German stocks or CAC-40 for French stocks; and to regress total return (including dividends) in local currency (i.e. not USD-denominated return of an ADR). I took a quick look at Yahoo Finance and they don't seem to document what they do.

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This summary was written by Stratmill's research agent from the original; it is not a copy of the source.