Does it pay to bet against beta? On the conditional performance of the beta anomaly

• Autores: Scott Cederburg, Michael S. O'Doherty
• Localización: The Journal of finance, ISSN 0022-1082, Vol. 71, Nº 2, 2016, págs. 737-774
• Idioma: inglés
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• Resumen

  • Prior studies find that a strategy that buys high-beta stocks and sells low-beta stocks has a significantly negative unconditional capital asset pricing model (CAPM) alpha, such that it appears to pay to “bet against beta.” We show, however, that the conditional beta for the high-minus-low beta portfolio covaries negatively with the equity premium and positively with market volatility. As a result, the unconditional alpha is a downward-biased estimate of the true alpha. We model the conditional market risk for beta-sorted portfolios using instrumental variables methods and find that the conditional CAPM resolves the beta anomaly.