Question

Whats the difference between Value Line beta and 3-year regression beta? What are the underlying assumptions? What are the pro- and cons of both methods?

Answer 1

Mean-Absolute-Deviation versus Least-Squares Regression Estimation of Beta Coefficients
Bradford Cornell* and J. Kimball Dietrich*
Much of the applied work in finance, for instance the literature on capital budgeting, assumes that a firm's management has an accurate estimate of the firm's beta. This estimate is presumably derived by running a regression of the form:

where:
Ri = rate of return on equity for firm i,
Rf = the risk-free rate, and
u = a white noise random variable.