In the developed securities market, Beta coefficient is widely used in security analysis and investment decisions, especially in fund management. Beta coefficient is mainly applied in the following aspects:
(1) To measure the profitability of the risk
(2) To be used as a vital input parameter of Investment portfolio
(3) To reflect the feature of investment portfolio
(4) To get extra yields by choose different beta coefficient on the basis of market forecasts
Beta is used as model and tool of control the system risk by Academics and practitioners. Beta comes from risk indicator of the relationship between stock yield and market yield. Beta coefficient is the rate of stock return covariance with the market portfolio return and the variance of the market portfolio return (Cochrane, 1996). It represents the sensitivity of the asset return change related the market portfolio return. It also describes system risk of an asset. The risk opposed to a systematic risk is the individual risk (unsystematic risk), that is price fluctuations caused by the company factors (Bolton, Chen, and Wang, 2011).