Betting Against Beta / Andrea Frazzini, Lasse H. Pedersen.

Format:

Book

Author/Creator:

Frazzini, Andrea.

Contributor:

National Bureau of Economic Research.

Pedersen, Lasse H.

Series:

Working Paper Series (National Bureau of Economic Research) no. w16601.

NBER working paper series no. w16601

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2010.

Summary:

We present a model in which some investors are prohibited from using leverage and other investors' leverage is limited by margin requirements. The former investors bid up high-beta assets while the latter agents trade to profit from this, but must de-lever when they hit their margin constraints. We test the model's predictions within U.S. equities, across 20 global equity markets, for Treasury bonds, corporate bonds, and futures. Consistent with the model, we find in each asset class that a betting-against-beta (BAB) factor which is long a leveraged portfolio of low-beta assets and short a portfolio of high-beta assets produces significant risk-adjusted returns. When funding constraints tighten, betas are compressed towards one, and the return of the BAB factor is low.

Notes:

Print version record

December 2010.