Bear Beta

127 Pages Posted: 20 Nov 2016 Last revised: 5 Feb 2021

See all articles by Zhongjin Lu

Zhongjin Lu

University of Georgia - Department of Finance

Scott Murray

Georgia State University

Date Written: November 1, 2017


We test whether bear market risk - time-variation in the probability of future bear market states - is priced. We construct an Arrow-Debreu security that pays off in bear market states (AD Bear) from traded S&P 500 index options and use its returns to measure bear market risk. We find that bear beta (exposure to bear market risk) has a strong relation with expected stock returns that is robust, persistent, and remains strong among liquid and large stocks. Historical bear beta also predicts future bear market risk exposure. We conclude that bear market risk is priced in the cross-section of stock returns.

Keywords: Arrow-Debreu State Prices, Bear Beta, Bear Market Risk, Downside Risk, Factor Models

JEL Classification: G11, G12, G13, G17

Suggested Citation

Lu, Zhongjin and Murray, Scott, Bear Beta (November 1, 2017). Journal of Financial Economics (JFE), Forthcoming, Available at SSRN: or

Zhongjin Lu

University of Georgia - Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6254
United States

Scott Murray (Contact Author)

Georgia State University ( email )

35 Broad Street
Atlanta, GA 30303-3083
United States

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