Betting against beta
By: Andrea Frazzini, Lasse H. Pedersen
Contributors: Pedersen, Lasse Heje; National Bureau of Economic Research
Series: NBER working paper series -- working paper 16601; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 16601.
Publisher: National Bureau of Economic Research
Published: 2010
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "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"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 4/5/2011.

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