Working paper

Beta Risk in the Cross-Section of Equities

Ali Boloorforoosh, Peter Christoffersen, Mathieu Fournier, and Christian Gouriéroux

Keywords

We develop a conditional capital asset pricing model in continuous-time that allows for stochastic beta exposure. When beta co-moves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market; line. The model predicts that low-beta stocks earn high returns because their beta co-moves; positivelywithmarket varianceandtheSDF. The oppositeis true forhigh-betastocks. Estimating; the model on equity and option data, we nd that beta risk explains expected returns on low- and; high-beta stocks, resolving the "betting against beta" anomaly;

Reference

Ali Boloorforoosh, Peter Christoffersen, Mathieu Fournier, and Christian Gouriéroux, Beta Risk in the Cross-Section of Equities, TSE Notes/Notes TSE, August 2019.

See also

Published in

TSE Notes/Notes TSE, August 2019