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Beta dispersion and portfolio returns

Author

Listed:
  • Kyre Dane Lahtinen

    (University of South Alabama)

  • Chris M. Lawrey

    (University of South Alabama)

  • Kenneth J. Hunsader

    (University of South Alabama)

Abstract

As any well-versed investor should know, there are many ways in which beta can be calculated based on factors such as the choice of time interval and market proxy used in the estimation process. Of course, this can lead to wide variation in beta estimates reported through publication sources. In this paper, we create portfolios based on the dispersion in the estimate of 27 different beta calculations. Defining stocks with higher variation in their beta estimates as higher risk, and consistent with risk-return theory, we find that portfolios of stocks with high dispersion across beta estimates outperform portfolios of stocks with low dispersion regardless of their level of systematic risk.

Suggested Citation

  • Kyre Dane Lahtinen & Chris M. Lawrey & Kenneth J. Hunsader, 2018. "Beta dispersion and portfolio returns," Journal of Asset Management, Palgrave Macmillan, vol. 19(3), pages 156-161, May.
    • Handle: RePEc:pal:assmgt:v:19:y:2018:i:3:d:10.1057_s41260-017-0071-6
    DOI: 10.1057/s41260-017-0071-6
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    References listed on IDEAS

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    1. Alexander, Gordon J. & Chervany, Norman L., 1980. "On the Estimation and Stability of Beta," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(1), pages 123-137, March.
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    3. Tarun Chordia & Bhaskaran Swaminathan, 2000. "Trading Volume and Cross‐Autocorrelations in Stock Returns," Journal of Finance, American Finance Association, vol. 55(2), pages 913-935, April.
    4. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    5. Soeren Hvidkjaer, 2008. "Small Trades and the Cross-Section of Stock Returns," The Review of Financial Studies, Society for Financial Studies, vol. 21(3), pages 1123-1151, May.
    6. Gonedes, Nicholas J., 1973. "Evidence on the Information Content of Accounting Numbers: Accounting-based and Market-based Estimates of Systematic Risk," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 8(3), pages 407-443, June.
    7. Baesel, Jerome B, 1974. "On the Assessment of Risk: Some Further Considerations," Journal of Finance, American Finance Association, vol. 29(5), pages 1491-1494, December.
    8. William F. Sharpe, 1963. "A Simplified Model for Portfolio Analysis," Management Science, INFORMS, vol. 9(2), pages 277-293, January.
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    Cited by:

    1. Valadkhani, Abbas, 2022. "Do large-cap exchange-traded funds perform better than their small-cap counterparts in extreme market conditions?☆," Global Finance Journal, Elsevier, vol. 53(C).
    2. Hong, Jiawei & Yu, Xiaojian & Xiao, Weilin & Zhang, Xili, 2022. "The dispersion of beta estimates and the investors’ heterogeneous Beliefs：Evidence from the stock market in China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 540-550.

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    More about this item

    Keywords

    Beta; Volatility; Risk and return;
    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
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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