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Modified Beta and Cross-Sectional Stock Returns

Midwest Finance Association 2012 Annual Meetings Paper

Posted: 20 Sep 2011 Last revised: 8 Mar 2012

See all articles by Steven A. Dennis

Steven A. Dennis

East Tennessee State University - Economics, Finance, Geography & Urban Studies

Pradosh Simlai

affiliation not provided to SSRN

William Steven Smith

University of North Dakota

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2011

Abstract

We incorporate up versus down markets in time series regressions, and we compare the predictive power in cross-sectional asset returns of the CAPM beta, beta from up markets, beta from down markets, and two modified betas based on scaling the CAPM beta by the up/down betas. The CAPM beta scaled by the ratio of Up beta to Down beta is the only type of beta that demonstrates any predictive power. Moreover, this modified beta remains significant even when including size and book-to-market characteristics and SMB, HML and momentum factors as explanatory variables.

Suggested Citation

Dennis, Steven A. and Simlai, Pradosh and Smith, William Steven, Modified Beta and Cross-Sectional Stock Returns (September 16, 2011). Midwest Finance Association 2012 Annual Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1928883 or http://dx.doi.org/10.2139/ssrn.1928883

Steven A. Dennis

East Tennessee State University - Economics, Finance, Geography & Urban Studies ( email )

Box 70267
Johnson City, TN 37614-1700

Pradosh Simlai (Contact Author)

affiliation not provided to SSRN ( email )

William Steven Smith

University of North Dakota ( email )

Box 7096
Grand Forks, ND 58202
United States

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