Realized Semibetas: Signs of Things to Come

70 Pages Posted: 16 Mar 2020

See all articles by Tim Bollerslev

Tim Bollerslev

Duke University - Finance; Duke University - Department of Economics; National Bureau of Economic Research (NBER)

Andrew J. Patton

Duke University - Department of Economics

Rogier Quaedvlieg

Erasmus University Rotterdam (EUR) - Department of Business Economics

Date Written: February 20, 2020

Abstract

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

Bollerslev, Tim and Patton, Andrew J. and Quaedvlieg, Rogier, Realized Semibetas: Signs of Things to Come (February 20, 2020). Economic Research Initiatives at Duke (ERID) Working Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=3528276 or http://dx.doi.org/10.2139/ssrn.3528276

Tim Bollerslev

Duke University - Finance ( email )

Durham, NC 27708-0120
United States
919-660-1846 (Phone)
919-684-8974 (Fax)

Duke University - Department of Economics

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
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Andrew J. Patton

Duke University - Department of Economics ( email )

213 Social Sciences Building
Box 90097
Durham, NC 27708-0204
United States

HOME PAGE: http://econ.duke.edu/~ap172/

Rogier Quaedvlieg (Contact Author)

Erasmus University Rotterdam (EUR) - Department of Business Economics ( email )

Netherlands

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