Question

Would we expect technology companies to have high betas? if so, why?

Answer 1

Yes we would expect technology companies to have high beta.

Technology companies are continuously innovating and high expectations are placed on them which makes it the most volatile.There is high swings in the technology companies, the stock prices can sing form gains to losses within a year. These stocks have above - average growth potential and any slip ups in the earnings report leads to the stock price taking a beating by the investors.

Due to constant innovation in technology sector, of a company falls behind in research and development .Due to the rapid changes taking place in this industry there is always a a risk for technology companies because of the possibility that their products could become obsolete.Due to the intense competition in this sector, it makes companies difficult to survive. So, this sector is highly volatile and risk which justifies the high beta.