The Dispersion of ETF Betas on Financial Websites

Abstract

This article documents significant dispersion in the beta estimates of exchange-traded funds as available on some leading financial websites. To the best of the authors’ knowledge, this is the first systematic study of the dispersion of betas as seen on major finance websites. Almost 40 million visitors access these websites per month. The authors find that leading sites such as Yahoo! Finance, MSNMoney, Morningstar, and Google Finance display betas that significantly (but not intentionally) misrepresent actual levels of systematic risk. These errors could impact the portfolio design of an investor, leading to unintended outcomes. Additionally, the authors identify the primary reason for the significant variance in beta estimates. The explanation is surprising and not rooted in the traditionally discussed differences that are attributed to interval-window length mismatch or varying frequency of security returns. An implication of the findings is that there is no substitute for verification and cross-validation of financial information, even if it is supposedly coming from well-established sources or so-called “black boxes.”

TOPICS: Exchange-traded funds and applications, portfolio construction, risk management