Equally weighted portfolios vs value weighted portfolios: Reasons for differing betas

Yuntaek Pae and Navid Sabbaghi

Journal of Financial Stability, 2015, vol. 18, issue C, 203-207

Abstract: We prove that constituent companies’ capital structure and tax shield cause the difference in systematic risk between an equally weighted portfolio and a value weighted portfolio in an efficient market where the CAPM holds. The difference in systematic risk has positive association with component companies’ default risk.

Keywords: Equally weighted portfolio; Value weighted portfolio; Size effect; Noisy market hypothesis; Tax shield (search for similar items in EconPapers)
JEL-codes: G11 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finsta:v:18:y:2015:i:c:p:203-207

DOI: 10.1016/j.jfs.2015.04.006

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