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Conference Paper: The booms and busts of beta arbitrage

TitleThe booms and busts of beta arbitrage
Authors
Issue Date2016
Citation
The 2016 Finance Down Under Conference, Melbourne, Australia, 3-5 March 2016. 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 shortrun 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.
DescriptionConference Theme: Building on the Best from the Cellars of Finance Call for Participants
Parallel Sessions 3 - Asset Pricing 2
Persistent Identifierhttp://hdl.handle.net/10722/233173

 

DC FieldValueLanguage
dc.contributor.authorHuang, S-
dc.contributor.authorLou, D-
dc.contributor.authorPolk, C-
dc.date.accessioned2016-09-20T05:35:04Z-
dc.date.available2016-09-20T05:35:04Z-
dc.date.issued2016-
dc.identifier.citationThe 2016 Finance Down Under Conference, Melbourne, Australia, 3-5 March 2016.-
dc.identifier.urihttp://hdl.handle.net/10722/233173-
dc.descriptionConference Theme: Building on the Best from the Cellars of Finance Call for Participants-
dc.descriptionParallel Sessions 3 - Asset Pricing 2-
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 shortrun 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.ispartofFinance Down Under Conference-
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.hkuros263273-

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