Tag Archives: beta in finance
The low volatility anomaly and CAPM
A look at a paper that explores possible assumption failures of CAPM that would explain the low volatility anomaly. Previously We’ve talked about CAPM before, in particular: 4 and a half myths about beta in finance There has also been substantial talk about low volatility investing. The paper The paper is “Explanations for the Volatility … Continue reading
Betas of the low vol cohorts
How did the constraints affect portfolio betas, and how did the betas change over time? Previously “Low (and high) volatility strategy effects” created 6 sets of random portfolios — the so-called low vol cohorts — as of 2007 and showed their performance up to about a month ago. “Rebalancing the low vol cohorts” looked at … Continue reading
Posted in Quant finance, R language, Random portfolios
Tagged beta in finance, low volatility investing
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Beta is not volatility
The missing link between beta and volatility is correlation. Previously “4 and a half myths about beta in finance” attempted to dislodge several myths about beta, including that beta is about volatility. “Low (and high) volatility strategy effects” showed a plot of beta versus volatility for stocks in the S&P 500 for estimates from 2006. … Continue reading
Low (and high) volatility strategy effects
Does minimum variance act differently from low volatility? Do either of them act like low beta? What about high volatility versus high beta? Inspiration Falkenblog had a post investigating differences in results when using different strategies for low volatility investing. Here we look not at a single portfolio of a given strategy over time, but … Continue reading
Posted in Quant finance, R language, Random portfolios
Tagged beta in finance, low volatility investing
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Beta and expected returns
Some pictures to explore the reality of the theory that stocks with higher beta should have higher expected returns. Figure 2 of “The effect of beta equal 1” shows the return-beta relationship as downward sloping. That’s a sample of size 1. In this post we add six more datapoints. Data The exact same betas of … Continue reading
Posted in Quant finance, R language
Tagged beta in finance, Capital Asset Pricing Model, CAPM, low volatility investing, S&P 500
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A brief history of S&P 500 beta
Data The data are daily returns starting at the beginning of 2007. There are 477 stocks for which there is full and seemingly reliable data. Estimation The betas are all estimated on one year of data. The times that identify the betas mark the point at which the estimate would become available. So the betas … Continue reading
Posted in Quant finance, R language
Tagged beta in finance, Capital Asset Pricing Model, CAPM
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Realized beta and beta equal 1
What does beta look like in the out-of-sample period for the portfolios generated to have beta equal to 1? In the comments Ian Priest wonders if the results in “The effect of beta equal 1” are due to a shift in beta from the estimation period to the out-of-sample period. (The current post will make … Continue reading
Posted in Quant finance, R language
Tagged beta equal 1, beta in finance, Capital Asset Pricing Model, CAPM
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The effect of beta equal 1
Investment Performance Guy had a post about beta equal 1. It made me wonder about the properties of portfolios with beta equal 1. When I looked, I got a bigger answer than I expected. Data I have some S&P 500 data lying about from the post ‘On “Stock correlation has been rising”‘. So laziness dictated … Continue reading
Posted in Quant finance, R language, Random portfolios
Tagged beta equal 1, beta in finance, Capital Asset Pricing Model, CAPM
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4 and a half myths about beta in finance
Much of what has been said and thought about beta in finance is untrue. Myth 1: beta is about volatility This myth is pervasive. Beta is associated with the stock’s volatility but there is more involved. Beta is the ratio of the volatility of the stock to the volatility of the market times the correlation … Continue reading
Posted in Quant finance, R language
Tagged beta in finance, Capital Asset Pricing Model, CAPM, statistical bootstrap
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