What does a higher beta coefficient indicate about a stock?

A higher beta coefficient indicates that a stock is more volatile and carries greater risk compared to the overall market. Beta measures the sensitivity of a stock's price in relation to the price movements of the market as a whole.

When a stock has a beta greater than 1, it indicates that its price tends to move more significantly than the market's movements. For example, if the market experiences a 10% increase, a stock with a beta of 1.5 might see a 15% increase, demonstrating its heightened sensitivity to market fluctuations. Conversely, in a declining market, that same stock may fall more than the market average, reflecting its increased volatility.

This characteristic makes such stocks appealing to certain investors who are looking for higher returns, albeit with the understanding that this comes with increased risk. Therefore, a higher beta essentially signals to investors that they should expect larger price swings and be prepared for potential losses during downturns, reinforcing the idea of greater investment risk.