Short-Horizon Beta or Long-Horizon Alpha?

Posted: 29 Dec 2016 Last revised: 2 Nov 2018

See all articles by Avraham Kamara

Avraham Kamara

University of Washington - Michael G. Foster School of Business

Robert A. Korajczyk

Northwestern University

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics

Ronnie Sadka

Boston College - Carroll School of Management

Date Written: June 11, 2018

Abstract

The authors study whether the pricing of systematic factors depends on the investment horizon over which risk is measured. Market beta and Fama--French value beta are priced when risk is measured over intermediate horizons, while liquidity beta is priced over short horizons. Alpha on a long-short portfolio formed on short-horizon liquidity beta increases monotonically as an investor's horizon, for measuring risk, increases, making those assets more attractive to long-horizon investors. Institutional investors align their portfolios to harvest risk premiums that are important to investors with different horizons than their own.

Keywords: Investor Horizon, Investor Clientele, Asset Pricing Model, Risk Factors

JEL Classification: G1, G11, G12

Suggested Citation

Kamara, Avraham and Korajczyk, Robert A. and Lou, Xiaoxia and Sadka, Ronnie, Short-Horizon Beta or Long-Horizon Alpha? (June 11, 2018). Journal of Portfolio Management, Vol. 45, No. 1, (Fall 2018): 96-105., Available at SSRN: https://ssrn.com/abstract=2890944 or http://dx.doi.org/10.2139/ssrn.2890944

Avraham Kamara

University of Washington - Michael G. Foster School of Business ( email )

Box 353200
Seattle, WA 98195-3200
United States
206-543-0652 (Phone)
206-221-6856 (Fax)

Robert A. Korajczyk (Contact Author)

Northwestern University ( email )

Kellogg School of Management
2211 Campus Drive, Room 4357
Evanston, IL 60208-0898
United States
847-491-8336 (Phone)
847-491-7781 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/korajczyk_robert.aspx#research

Xiaoxia Lou

University of Delaware - Alfred Lerner College of Business and Economics ( email )

419 Purnell Hall
Newark, DE 19716
United States

Ronnie Sadka

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

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