File Download

There are no files associated with this item.

Conference Paper: The Booms and Busts of Beta Arbitrage

TitleThe Booms and Busts of Beta Arbitrage
Authors
Issue Date2015
Citation
The 2015 FRIC Conference on Efficiently Inefficient Markets, Copenhagen Business School, Copenhagen, Denmark, 24-25 August 2015. How to Cite?
AbstractLow-beta stocks deliver high average returns and low risk relative to high-beta stocks, an opportunity for professional investors to “arbitrage” away. We argue that betaarbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of low arbitrage activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In stark contrast, when activity is high, prices overshoot as short-run abnormal returns are much larger and then revert in the long run. We document a novel positive-feedback channel operating through firm-level leverage that facilitates these boom and bust cycles. These cyclical patterns also show up in hedge fund exposures to beta arbitrage, particularly exposures of smaller and thus more nimble funds, and can be linked to the past performance of the strategy.
Persistent Identifierhttp://hdl.handle.net/10722/233171

 

DC FieldValueLanguage
dc.contributor.authorPolk, C-
dc.contributor.authorHuang, S-
dc.contributor.authorLou, D-
dc.date.accessioned2016-09-20T05:35:02Z-
dc.date.available2016-09-20T05:35:02Z-
dc.date.issued2015-
dc.identifier.citationThe 2015 FRIC Conference on Efficiently Inefficient Markets, Copenhagen Business School, Copenhagen, Denmark, 24-25 August 2015.-
dc.identifier.urihttp://hdl.handle.net/10722/233171-
dc.description.abstractLow-beta stocks deliver high average returns and low risk relative to high-beta stocks, an opportunity for professional investors to “arbitrage” away. We argue that betaarbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of low arbitrage activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In stark contrast, when activity is high, prices overshoot as short-run abnormal returns are much larger and then revert in the long run. We document a novel positive-feedback channel operating through firm-level leverage that facilitates these boom and bust cycles. These cyclical patterns also show up in hedge fund exposures to beta arbitrage, particularly exposures of smaller and thus more nimble funds, and can be linked to the past performance of the strategy.-
dc.languageeng-
dc.relation.ispartofFRIC'15 Conference on Efficiently Inefficient Markets-
dc.titleThe Booms and Busts of Beta Arbitrage-
dc.typeConference_Paper-
dc.identifier.emailHuang, S: huangsy@hku.hk-
dc.identifier.authorityHuang, S=rp02052-
dc.identifier.hkuros263271-

Export via OAI-PMH Interface in XML Formats


OR


Export to Other Non-XML Formats