Realized Semibetas: Signs of Things to Come
70 Pages Posted: 16 Mar 2020
Date Written: February 20, 2020
We propose a new decomposition of the traditional market beta into four semibetas depending on the signed covariation between the market and individual asset returns. Consistent with the pricing implications from a mean-semivariance framework, we show that higher semibetas defined by negative market and negative (positive) asset return covariation predict significantly higher (lower) future returns, while the other two semibetas do not appear to be priced. The results are robust to an array of alternative test specifications and additional controls. Rather than betting on or against beta, we conclude that it is better to bet on and against the "right" semibetas.
Keywords: Cross-sectional return variation; downside risk; semicovariances; semibetas
JEL Classification: G11, G12, C58
Suggested Citation: Suggested Citation