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http://ssrn.com/abstract=1976285
 
 

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Beta-Arbitrage Strategies: When Do They Work, and Why?


Tony Berrada


University of Geneva; Swiss Finance Institute

Reda Jürg Messikh


Pictet Asset Management SA

Gianluca Oderda


Ersel Asset Management SGR s.p.a.

Olivier V. Pictet


Pictet Asset Management

April 7, 2014

Swiss Finance Institute Research Paper No. 11-64

Abstract:     
Contrary to what traditional asset pricing would imply, a strategy that bets against beta, by going long in low beta stocks and short in high beta stocks, tends to outperform the market. We consider a market in which diversity is maintained, i.e. no single stock can dominate the entire market, and we show that beta-arbitrage strategies mechanically out-perform the market portfolio. We provide empirical support to our explanation on equity country indices, equity sectors, individual stocks, and stock portfolios. Finally, we show how to construct optimal beta- arbitrage strategies that maximize the expected return relative to a given benchmark.

Number of Pages in PDF File: 59

Keywords: Relative arbitrage, Market diversity, Beta

JEL Classification: G11

working papers series


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Date posted: January 9, 2012 ; Last revised: April 7, 2014

Suggested Citation

Berrada, Tony and Messikh, Reda Jürg and Oderda, Gianluca and Pictet, Olivier V., Beta-Arbitrage Strategies: When Do They Work, and Why? (April 7, 2014). Swiss Finance Institute Research Paper No. 11-64. Available at SSRN: http://ssrn.com/abstract=1976285 or http://dx.doi.org/10.2139/ssrn.1976285

Contact Information

Tony Berrada (Contact Author)
University of Geneva ( email )
40, Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland
Swiss Finance Institute ( email )
c/o University of Geneve
40, Bd du Pont-d'Arve
1211 Geneva, CH-6900
Switzerland

Reda Jürg Messikh
Pictet Asset Management SA ( email )
Geneva
Switzerland
Gianluca Oderda
Ersel Asset Management SGR s.p.a. ( email )
Piazza Solferino 11
Torino, 10121
Italy
+390115520622 (Phone)
+390115520241 (Fax)
Olivier V. Pictet
Pictet Asset Management ( email )
Geneva
Switzerland
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