Common Stock Beta Strategies

Frank J. Fabozzi and Francesco A. Fabozzi

Chapter 12 in Fundamentals of Institutional Asset Management, 2020, pp 331-360 from World Scientific Publishing Co. Pte. Ltd.

Abstract: Common stock investment strategies are classified as either beta strategies or alpha strategies. As explained in Chapter 7, the beta of a portfolio or an investment strategy is a measure of the volatility of the portfolio or investment strategy relative to the benchmark. For example, if the benchmark is the Standard & Poor’s 500 and the beta of a portfolio is equal to 1, this means that the portfolio will move with the market. So, if the S&P 500 changes in 1 year by 6%, the portfolio is expected to change by approximately 6%. Investors who either manage their own portfolio to match the performance of the benchmark or who engage an asset manager to do so, are referred to as passive investors and the strategies that they follow are referred to as beta strategies. In contrast, investors who pursue a strategy to outperform a benchmark or who engage an asset manager to do so are referred to as active investors and the strategies pursued are referred to as alpha strategies. In this chapter, we focus on beta strategies, and in the next chapter, we focus on alpha strategies.

Keywords: Investment Risks; Investment Vehicles; Portfolio Theory; Asset Pricing Theory; Mean-Variance Analysis; Measuring Return; Measuring Risk; Company Equity Analysis; Equity Valuation Models; Common Stock Alpha Strategies; Common Stock Beta Strategies; Smart Beta Strategies; Factor Investing; Equity Indexing; Equity Derivatives; Bond Analytics; Bond Pricing; Interest Rate Risk; Duration; Interest Rate Derivatives; Credit Derivatives; Multi-Asset Portfolio Strategies; Collective Investment Vehicles; Alternative Assets (search for similar items in EconPapers)
JEL-codes: G1 G11 G3 G30 (search for similar items in EconPapers)
Date: 2020
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