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; Centre for International Finance and Regulation (CIFR); National Bureau of Economic Research (NBER); New York University (NYU) - Department of Finance

Yi Tang


Fordham University - School of Business

March 1, 2014


Abstract:     
This paper investigates the significance of dynamic conditional beta in predicting the cross-sectional variation in expected stock returns. The results indicate that the time-varying conditional beta is alive and well in the cross-section of daily stock returns. Portfolio-level analyses and firm-level cross-sectional regressions indicate a positive and significant relation between dynamic conditional beta and future returns on individual stocks. 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 of 8% per annum. These results are robust to controls for size, book-to-market, momentum, short-term reversal, liquidity, co-skewness, idiosyncratic volatility, and preference for lottery-like assets.

Number of Pages in PDF File: 68

Keywords: Dynamic conditional beta, conditional CAPM, ICAPM, expected stock returns

JEL Classification: G10, G11, C13

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Date posted: June 23, 2012 ; Last revised: March 18, 2014

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 (March 1, 2014). 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
Centre for International Finance and Regulation (CIFR) ( email )
Level 7, UNSW CBD Campus
1 O'Connell Street
Sydney, NSW 2000
Australia

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
New York University (NYU) - Department of Finance
Stern School of Business
44 West 4th Street
New York, NY 10012-1126
United States
Yi Tang
Fordham University - School of Business ( email )
113 West 60th Street
Bronx, NY 10458
United States

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