27 Pages Posted: 3 May 2013 Last revised: 10 May 2013
Date Written: May 10, 2013
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.
Keywords: Low Beta, Betting against Beta
JEL Classification: G10, G11, G12, G15
Suggested Citation: Suggested Citation
Asness, Clifford S. and Frazzini, Andrea and Pedersen, Lasse Heje, Low-Risk Investing Without Industry Bets (May 10, 2013). Available at SSRN: https://ssrn.com/abstract=2259244 or http://dx.doi.org/10.2139/ssrn.2259244