Abstract

http://ssrn.com/abstract=2089636
 
 

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Dynamic Conditional Beta is Alive and Well in the Cross-Section of Daily Stock Returns


Turan G. Bali


Georgetown University - Robert Emmett McDonough School of Business

Robert F. Engle


New York University - Leonard N. Stern School of Business - Department of Economics; New York University (NYU) - Department of Finance; National Bureau of Economic Research (NBER)

Yi Tang


Fordham University - Gabelli School of Business

April 2016


Abstract:     
This paper presents evidence for a significantly positive link between the dynamic conditional beta and the cross-section of daily stock returns. An investment strategy that takes a long position in stocks in the highest conditional beta decile and a short position in stocks in the lowest conditional beta decile produces average returns and alphas in the range of 0.60% to 0.80% per month. We provide an investor attention based explanation of this finding. We show that stocks with high conditional beta have strong attention-grabbing characteristics, leading to higher fraction of buyer-initiated trades for these stocks. We also find that stocks recently bought perform significantly better than stocks recently sold. Hence, the high beta stocks that investors are more likely to buy have higher expected returns than the low beta stocks that investors are more likely to sell.

Number of Pages in PDF File: 55

Keywords: Dynamic conditional beta, conditional CAPM, ICAPM, investor attention, buying intensity, and expected stock returns

JEL Classification: G10, G11, C13


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Date posted: June 23, 2012 ; Last revised: April 15, 2016

Suggested Citation

Bali, Turan G. and Engle, Robert F. and Tang, Yi, Dynamic Conditional Beta is Alive and Well in the Cross-Section of Daily Stock Returns (April 2016). Available at SSRN: http://ssrn.com/abstract=2089636 or http://dx.doi.org/10.2139/ssrn.2089636

Contact Information

Turan G. Bali (Contact Author)
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)
HOME PAGE: http://faculty.msb.edu/tgb27/index.html

Robert F. Engle
New York University - Leonard N. Stern School of Business - Department of Economics ( email )
269 Mercer Street
New York, NY 10003
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Yi Tang
Fordham University - Gabelli School of Business ( email )
113 West 60th Street
New York, NY 10023
United States

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