Betting Against Betting Against Beta

Frazzini and Pedersen’s (2014) Betting Against Beta (BAB) factor is based on the same basic idea as Blacks’(1972) beta-arbitrage, but its astonishing performance has generated academic interest and made it highly influential with practitioners. This performance is driven by non-standard procedures used in its construction that effectively, but non-transparently, equal weight stock returns. For each dollar invested in BAB, the strategy commits on average $1.05 to stocks in the bottom 1% of total market capitalization. BAB earns positive returns after accounting for transaction costs, but earns these by tilting toward profitability and investment. Predictable biases resulting from Frazzini and Pedersen’s non-standard beta estimation procedure drive results presented as evidence supporting BAB’s underlying theory.

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Work Title Betting Against Betting Against Beta
Access
Open Access
Creators
  1. Robert Novy-Marx
  2. Mihail Velikov
Keyword
  1. Factor models
  2. Beta-arbitrage
  3. Defensive equity
  4. Non-standard methods
  5. Asset Pricing
License CC BY-NC-ND 4.0 (Attribution-NonCommercial-NoDerivatives)
Work Type Article
Publisher
  1. Elsevier BV
Publication Date January 2022
Publisher Identifier (DOI)
  1. 10.1016/j.jfineco.2021.05.023
Source
  1. Journal of Financial Economics
Deposited April 04, 2022

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Version 1
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  • Created
  • Added BABAB_201215-1.pdf
  • Added Creator Robert Novy-Marx
  • Added Creator Mihail Velikov
  • Published
  • Updated Work Title, Keyword Show Changes
    Work Title
    • Betting Against Betting Against Beta
    • ! Betting Against Betting Against Beta
    Keyword
    • Factor models, Beta-arbitrage, Defensive equity, Non-standard methods, Asset Pricing
  • Updated Work Title Show Changes
    Work Title
    • ! Betting Against Betting Against Beta
    • Betting Against Betting Against Beta
  • Updated