Betting Against Beta

Andrea Frazzini and Lasse Pedersen
Additional contact information
Andrea Frazzini: AQR Capital Management, LLC

No 12-17, Swiss Finance Institute Research Paper Series from Swiss Finance Institute

Abstract: We present a model with leverage and margin constraints that vary across investors and time. We find evidence consistent with each of the model’s five central predictions: (1) Since constrained investors bid up high-beta assets, high beta is associated with low alpha, as we find empirically for U.S. equities, 20 international equity markets, Treasury bonds, corporate bonds, and futures; (2) A betting-against-beta (BAB) factor, which is long leveraged low beta assets and short high-beta assets, produces significant positive risk-adjusted returns; (3) When funding constraints tighten, the return of the BAB factor is low; (4) Increased funding liquidity risk compresses betas toward one; (5) More constrained investors hold riskier assets.

Pages: 85 pages
Date: 2012-05
References: Add references at CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
http://ssrn.com/abstract=2049939 (application/pdf)

Related works:
Journal Article: Betting against beta (2014)
Working Paper: Betting Against Beta (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:chf:rpseri:rp1217

Access Statistics for this paper

More papers in Swiss Finance Institute Research Paper Series from Swiss Finance Institute Contact information at EDIRC.
Bibliographic data for series maintained by Ridima Mittal ().