Turning alphas into betas: arbitrage and the cross-section of risk

Thummim Cho

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: What determines the cross-section of betas with respect to a risk factor? The act of arbitrage plays an important role. If the capital of arbitrageurs loads on a systematic factor, the assets traded by the arbitrageurs gain different sensitivities to that factor, depending on the asset positions taken by the arbitrageurs. I develop predictions about such "arbitrage-driven" betas in a model of constrained arbitrage and test them in the cross-section of equity anomalies. The arbitrage channel accounts for a substantial part of the cross-sectional variation in equity anomalies' betas in intermediary-based and multifactor asset pricing models.

JEL-codes: G11 G12 G23 (search for similar items in EconPapers)
Pages: 65 pages
Date: 2018-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://eprints.lse.ac.uk/118915/ Open access version. (application/pdf)

Related works:
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:ehl:lserod:118915

Access Statistics for this paper

More papers in LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library LSE Library Portugal Street London, WC2A 2HD, U.K.. Contact information at EDIRC.
Bibliographic data for series maintained by LSERO Manager ().