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Conference Paper: The booms and busts of beta arbitrage
Title | The booms and busts of beta arbitrage |
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Authors | |
Issue Date | 2015 |
Citation | The 42nd Annual Meeting of the European Finance Association (EFA 2015), Vienna, Austria, 19-22 August 2015. How to Cite? |
Abstract | Low-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 beta-arbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of low 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. |
Persistent Identifier | http://hdl.handle.net/10722/233172 |
DC Field | Value | Language |
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dc.contributor.author | Huang, S | - |
dc.contributor.author | Lou, D | - |
dc.contributor.author | Polk, C | - |
dc.date.accessioned | 2016-09-20T05:35:03Z | - |
dc.date.available | 2016-09-20T05:35:03Z | - |
dc.date.issued | 2015 | - |
dc.identifier.citation | The 42nd Annual Meeting of the European Finance Association (EFA 2015), Vienna, Austria, 19-22 August 2015. | - |
dc.identifier.uri | http://hdl.handle.net/10722/233172 | - |
dc.description.abstract | Low-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 beta-arbitrage activity instead generates booms and busts in the strategy’s abnormal trading profits. In times of low 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. | - |
dc.language | eng | - |
dc.relation.ispartof | Annual Meeting of the European Finance Association, EFA 2015 | - |
dc.title | The booms and busts of beta arbitrage | - |
dc.type | Conference_Paper | - |
dc.identifier.email | Huang, S: huangsy@hku.hk | - |
dc.identifier.authority | Huang, S=rp02052 | - |
dc.description.nature | postprint | - |
dc.identifier.hkuros | 263272 | - |