Non-myopic betas

Semyon Malamud and Grigory Vilkov

Journal of Financial Economics, 2018, vol. 129, issue 2, 357-381

Abstract: An overlapping generations model with investors having heterogeneous investment horizons leads to a two-factor asset pricing model. The risk premiums are determined by the exposure to the market (myopic betas) and the future return on the efficient portfolio (non-myopic betas), which is identified nonparametrically from equilibrium. Non-myopic betas are priced in the cross-section of stocks, producing increasing and economically significant risk-return relation. In the model with funding constraints, low non-myopic beta stocks deliver higher risk-adjusted returns. Empirically, a betting against non-myopic beta portfolio generates superior performance relative to common factor models and is negatively correlated with the market betting against beta portfolio.

Keywords: Asset prices; Beta; CAPM; Hedging; Strategic asset allocation (search for similar items in EconPapers)
JEL-codes: G01 G11 G12 G14 G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:129:y:2018:i:2:p:357-381

DOI: 10.1016/j.jfineco.2018.05.004

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