Agency‐Based Asset Pricing and the Beta Anomaly

32 Pages Posted: 16 Sep 2014

See all articles by David Blitz

David Blitz

Robeco Quantitative Investments

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Date Written: September 2014

Abstract

I argue that delegated portfolio management can cause the equilibrium relation between CAPM beta and expected stock returns to become flat, instead of linearly positive, and propose an alternative to the widely used Fama and French (1993) 3‐factor asset pricing model which incorporates this agency effect. An empirical comparison of the two models shows that the agency‐based 3‐factor model is much better at explaining the performance of portfolios sorted on beta or volatility, and at least as good at explaining the performance of various other test portfolios, including those the original 3‐factor model was designed to explain.

Keywords: asset pricing, beta anomaly, volatility anomaly, Fama‐French 3‐factor model, agency problems, delegated portfolio management

Suggested Citation

Blitz, David, Agency‐Based Asset Pricing and the Beta Anomaly (September 2014). European Financial Management, Vol. 20, Issue 4, pp. 770-801, 2014, Available at SSRN: https://ssrn.com/abstract=2496684 or http://dx.doi.org/10.1111/eufm.12039

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA
Netherlands

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