Abstract

http://ssrn.com/abstract=2259244
 
 

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Low-Risk Investing Without Industry Bets


Clifford S. Asness


AQR Capital Management, LLC

Andrea Frazzini


AQR Capital Management, LLC

Lasse Heje Pedersen


New York University (NYU); Copenhagen Business School; AQR Capital Management, LLC; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

May 10, 2013


Abstract:     
The strategy of buying safe low-beta stocks while shorting (or underweighting) riskier high-beta stocks has been shown to deliver significant risk-adjusted returns. However, it has been suggested that such “low-risk investing” delivers high returns primarily due to its industry bet, favoring a slowly changing set of stodgy, stable industries and disliking their opposites. We refute this. We show that a betting against beta (BAB) strategy has delivered positive returns both as an industry-neutral bet within each industry and as a pure bet across industries. In fact, the industry-neutral BAB strategy has performed stronger than the BAB strategy that only bets across industries and it has delivered positive returns in each of 49 U.S. industries and in 61 of 70 global industries. Our findings are consistent with the leverage aversion theory for why low beta investing is effective.

Number of Pages in PDF File: 27

Keywords: Low Beta, Betting against Beta

JEL Classification: G10, G11, G12, G15

working papers series


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Date posted: May 3, 2013 ; Last revised: May 10, 2013

Suggested Citation

Asness, Clifford S. and Frazzini, Andrea and Pedersen, Lasse Heje, Low-Risk Investing Without Industry Bets (May 10, 2013). Available at SSRN: http://ssrn.com/abstract=2259244 or http://dx.doi.org/10.2139/ssrn.2259244

Contact Information

Cliff S. Asness
AQR Capital Management, LLC ( email )
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
United States
203-742-3601 (Phone)
203-742-3101 (Fax)
HOME PAGE: http://www.aqrcapital.com
Andrea Frazzini (Contact Author)
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
New York University (NYU) ( email )
Stern School of Business, Dept. of Finance
44 West 4th St, Suite 9-190
New York, NY 10003-711
United States
HOME PAGE: http://pages.stern.nyu.edu/~lpederse/
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
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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