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Agency†Based Asset Pricing and the Beta Anomaly

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  • David Blitz

Abstract

I argue that delegated portfolio management can cause the equilibrium relation between CAPM beta and expected stock returns to become flat, instead of linearly positive, and propose an alternative to the widely used Fama and French (1993) 3†factor asset pricing model which incorporates this agency effect. An empirical comparison of the two models shows that the agency†based 3†factor model is much better at explaining the performance of portfolios sorted on beta or volatility, and at least as good at explaining the performance of various other test portfolios, including those the original 3†factor model was designed to explain.

Suggested Citation

  • David Blitz, 2014. "Agency†Based Asset Pricing and the Beta Anomaly," European Financial Management, European Financial Management Association, vol. 20(4), pages 770-801, September.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:4:p:770-801
    DOI: 10.1111/eufm.12039
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    References listed on IDEAS

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    Cited by:

    1. Kees G. Koedijk & Alfred M.H. Slager & Philip A. Stork, 2016. "Investing in Systematic Factor Premiums," European Financial Management, European Financial Management Association, vol. 22(2), pages 193-234, March.

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