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Do hedge funds bet against beta?

Author

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  • Malakhov, Alexey
  • Riley, Timothy B.
  • Yan, Qing

Abstract

Differences in conditions within the mutual fund and hedge fund industries should lead to different approaches with respect to the low beta anomaly. We find that, unlike most mutual funds, the average hedge fund tends to benefit considerably from the anomaly. About 2.3% per year of apparent alpha for the average hedge fund can be attributed to the low beta anomaly rather than manager skill. Low skill managers rely the most on the anomaly to generate returns, with the most reliant underperforming the least reliant by 5.9% per year.

Suggested Citation

  • Malakhov, Alexey & Riley, Timothy B. & Yan, Qing, 2024. "Do hedge funds bet against beta?," International Review of Economics & Finance, Elsevier, vol. 93(PA), pages 1507-1525.
    • Handle: RePEc:eee:reveco:v:93:y:2024:i:pa:p:1507-1525
    DOI: 10.1016/j.iref.2024.04.021
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    More about this item

    Keywords

    Hedge funds; Mutual funds; Factor exposures; Betting against beta; Factor models; Return attribution; Performance evaluation; Alpha; Performance prediction; Beta; Anomaly; Benchmarks; Leverage; Factor timing;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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