Aged and Recent Market Betas in Securities Pricing

56 Pages Posted: 17 Dec 2009

See all articles by Gerard Hoberg

Gerard Hoberg

University of Southern California - Marshall School of Business - Finance and Business Economics Department

Ivo Welch

University of California, Los Angeles (UCLA); National Bureau of Economic Research (NBER)

Date Written: September 9, 2007

Abstract

[This version of the paper now starts with a note that explains why we have effectively decided not to pursue this research direction further, as well as material that discusses why it is better to use stocks than preformed portfolios in asset-pricing tests.]

Instead of computing only one five-year market-beta, we compute one recent beta from 1 month to 2 years ago, and one aged market beta from 2 to 10 years ago, both using daily stock returns. We find that the aged beta has a positive influence on stock returns, consistent with standard hedging concerns. The recent beta has a negative influence on stock returns, whose cause is less clear. The evidence suggests that it is due to a novel factor, possibly behavioral or attention related. Previous research had failed to find that market-beta matters, primarily because ordinary market-betas combine these two opposing forces and because betas based on monthly stock returns are too weak. The importance of the two separate betas increases if we control for the Fama-French factors.

Keywords: market-beta, factor pricing, APT

JEL Classification: G12

Suggested Citation

Hoberg, Gerard and Welch, Ivo, Aged and Recent Market Betas in Securities Pricing (September 9, 2007). Available at SSRN: https://ssrn.com/abstract=987353 or http://dx.doi.org/10.2139/ssrn.987353

Gerard Hoberg (Contact Author)

University of Southern California - Marshall School of Business - Finance and Business Economics Department ( email )

Marshall School of Business
Los Angeles, CA 90089
United States

HOME PAGE: http://www-bcf.usc.edu/~hoberg/

Ivo Welch

University of California, Los Angeles (UCLA) ( email )

110 Westwood Plaza
C519
Los Angeles, CA 90095-1481
United States
310-825-2508 (Phone)

HOME PAGE: http://www.ivo-welch.info

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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