Abstract

http://ssrn.com/abstract=2049939
 
 

Citations (45)



 


 



Betting Against Beta


Andrea Frazzini


AQR Capital Management, LLC

Lasse Heje Pedersen


New York University (NYU) - Department of Finance; Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR)

October 9, 2011

Swiss Finance Institute Research Paper No. 12-17

Abstract:     
We present a model with leverage and margin constraints that vary across investors and time. We find evidence consistent with each of the model’s five central predictions: (1) Since constrained investors bid up high-beta assets, high beta is associated with low alpha, as we find empirically for U.S. equities, 20 international equity markets, Treasury bonds, corporate bonds, and futures; (2) A betting-against-beta (BAB) factor, which is long leveraged low beta assets and short high-beta assets, produces significant positive risk-adjusted returns; (3) When funding constraints tighten, the return of the BAB factor is low; (4) Increased funding liquidity risk compresses betas toward one; (5) More constrained investors hold riskier assets.

Number of Pages in PDF File: 85


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Date posted: May 3, 2012  

Suggested Citation

Frazzini, Andrea and Pedersen, Lasse Heje, Betting Against Beta (October 9, 2011). Swiss Finance Institute Research Paper No. 12-17. Available at SSRN: http://ssrn.com/abstract=2049939 or http://dx.doi.org/10.2139/ssrn.2049939

Contact Information

Andrea Frazzini
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3894 (Phone)
203-742-3394 (Fax)
HOME PAGE: http://www.econ.yale.edu/~af227/
Lasse Heje Pedersen (Contact Author)
New York University (NYU) - Department of Finance ( email )
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Copenhagen Business School ( email )
Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark
AQR Capital Management, LLC ( email )
Greenwich, CT
United States
Centre for Economic Policy Research (CEPR) ( email )
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
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