A type of beta that measures the volatility of a stock price (its systematic risk) in relation to the market as a whole. Dual-beta involves two independent betas: upside beta and downside beta, which are not necessarily identical (in contrast with traditional calculations of beta).

In general, market beta represents a coefficient which shows whether an investment/ instrument/ security (overall, any tradable asset) is more or less volatile than the market as a whole. Market beta can be divided into two components: upside beta that reflects upside risk and downside beta hat reflects downside risk.

Beta, by nature, underestimates downside risk and overestimates upside risk. Traditional beta assumes that a magnitude of gain on “advance days” will be equal to the magnitude of loss on “decline days” (in other words, a stock with a beta of 1.5 will gain 1.5 times the market on advance days and lose 1.5 times the market on decline days). Dual-beta doesn’t assume that upside beta and downside betas are identical.

The dual-beta model is a generalization of the capital asset pricing model (CAPM). In the dual-beta model, separate beta measures are assigned to up-market and down-market trading days.