File Download
There are no files associated with this item.
Supplementary
-
Citations:
- Appears in Collections:
Conference Paper: The Booms and Busts of Beta Arbitrage
Title | The Booms and Busts of Beta Arbitrage |
---|---|
Authors | |
Issue Date | 2015 |
Citation | The 2015 FRIC Conference on Efficiently Inefficient Markets, Copenhagen Business School, Copenhagen, Denmark, 24-25 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 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 Identifier | http://hdl.handle.net/10722/233171 |
DC Field | Value | Language |
---|---|---|
dc.contributor.author | Polk, C | - |
dc.contributor.author | Huang, S | - |
dc.contributor.author | Lou, D | - |
dc.date.accessioned | 2016-09-20T05:35:02Z | - |
dc.date.available | 2016-09-20T05:35:02Z | - |
dc.date.issued | 2015 | - |
dc.identifier.citation | The 2015 FRIC Conference on Efficiently Inefficient Markets, Copenhagen Business School, Copenhagen, Denmark, 24-25 August 2015. | - |
dc.identifier.uri | http://hdl.handle.net/10722/233171 | - |
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 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.language | eng | - |
dc.relation.ispartof | FRIC'15 Conference on Efficiently Inefficient Markets | - |
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.identifier.hkuros | 263271 | - |