International Beta

Better known as "global beta", international beta is a measure of the systematic risk or volatility of a stock or portfolio in relation to a global market, rather than a domestic market. The concept of international beta or global beta is especially relevant in the case of large multinational companies with worldwide operations whose stocks are more closely correlated with a global equity index than with the benchmark equity index in their country of domicile.

The basic capital asset pricing model (CAPM) can be used to determine the expected return on an asset based on its domestic beta and expected domestic market return. Similarly, the global CAPM can be used to calculate expected returns on an asset based on its global beta and expected return from a global index, such as the Morgan Stanley World Index.

 

The term "international beta" in the context of finance or portfolio theory should not be confused with international beta testing, which refers to the testing of software products in international markets.