How to measure firm's industry stock beta?

[Wali Ullah]

Hi everyone,

I am trying to measure firm's industry stock beta following the methodology used in the JFE paper "The influence of product market dynamics on a firm’s cash holdings and hedging behavior" by
David Haushalter, Sandy Klasa and William F. Maxwell (2007). I am quoting their methodology here,

"To measure how firms’ growth opportunities co-vary with those of their industry rivals, we calculate the correlation of firm stock returns with industry stock returns. The methodology used to calculate our correlation measure is similar to that in Parrino (1997). Using monthly stock return data from 1993 to 2001, we regress a firm’s monthly stock return on the monthly Center for Research in Security Prices (CRSP) equally weighted market return and the monthly equally weighted return for the index of firms sharing the same Compustat two-digit Standard Industrial Classification (SIC) code as the firm. The regression coefficient on the industry return index is then used as the proxy for the correlation between the firm’s stock returns with industry stock returns. To calculate these correlation measures we require that CRSP has at least 24 months of returns data for a firm."

I have collected the CRSP data on stock price, SIC code and equally weighted market return. I know it's a long process but will really appreciate it if someone can guide me towards the proper coding to get this beta!

Thanks in advance!

[Clyde Schechter]

It is unlikely anyone will try to answer this question without example data to work with. Please post back with an example of your Stata data that includes several industries and several firms in each of those industries. Be sure to use the -dataex- command to post the example.

If you are running version 16 or a fully updated version 15.1 or 14.2, -dataex- is already part of your official Stata installation. If not, run -ssc install dataex- to get it. Either way, run -help dataex- to read the simple instructions for using it. -dataex- will save you time; it is easier and quicker than typing out tables. It includes complete information about aspects of the data that are often critical to answering your question but cannot be seen from tabular displays or screenshots. It also makes it possible for those who want to help you to create a faithful representation of your example to try out their code, which in turn makes it more likely that their answer will actually work in your data.



When asking for help with code, always show example data. When showing example data, always use -dataex-.