Beta dispersion and market timing

Laura-Chloé Kuntz

No 46/2020, Discussion Papers from Deutsche Bundesbank

Abstract: The beta dispersion, which is the spread of betas on a stock market, can be interpreted as a measure of market vulnerability. This study examines the economic idea of the beta dispersion and its application as a market return predictor. Based on the empirical beta dispersion observed in the US equity market, the study develops measures to predict future market returns. These dispersion measures have substantial predictive power for future market movements. Moreover, I show that the informational content of beta dispersion can be successfully exploited by market timing strategies with the help of distributional regressions. This is an innovative application of this novel way of modeling the relationship between multiple variables and appears to be quite useful for timing strategies.

Keywords: beta dispersion; market return predictability; systematic risk; predictice regression; distributional regression; market timing; investment stragies (search for similar items in EconPapers)
JEL-codes: G10 G11 G17 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bubdps:462020

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