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Conference Paper: The booms and busts of beta arbitrage

TitleThe booms and busts of beta arbitrage
Authors
Issue Date2015
Citation
The 42nd Annual Meeting of the European Finance Association (EFA 2015), Vienna, Austria, 19-22 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 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 Identifierhttp://hdl.handle.net/10722/233172

 

DC FieldValueLanguage
dc.contributor.authorHuang, S-
dc.contributor.authorLou, D-
dc.contributor.authorPolk, C-
dc.date.accessioned2016-09-20T05:35:03Z-
dc.date.available2016-09-20T05:35:03Z-
dc.date.issued2015-
dc.identifier.citationThe 42nd Annual Meeting of the European Finance Association (EFA 2015), Vienna, Austria, 19-22 August 2015.-
dc.identifier.urihttp://hdl.handle.net/10722/233172-
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 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.languageeng-
dc.relation.ispartofAnnual Meeting of the European Finance Association, EFA 2015-
dc.rightsCreative Commons: Attribution 3.0 Hong Kong License-
dc.titleThe booms and busts of beta arbitrage-
dc.typeConference_Paper-
dc.identifier.emailHuang, S: huangsy@hku.hk-
dc.identifier.authorityHuang, S=rp02052-
dc.description.naturepostprint-
dc.identifier.hkuros263272-

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