Scientific article

Beta-arbitrage strategies: when do they work, and why?

Published inQuantitative finance, vol. 15, no. 2, p. 185-203
Publication date2015

Contrary to what traditional asset pricing would imply, a strategy that bets against beta, by going long in low beta stocks and short in high beta stocks, tends to outperform the market. We consider a market in which diversity is maintained, i.e. no single stock can dominate the entire market, and we show that beta-arbitrage strategies mechanically out-perform the market portfolio. We provide empirical support to our explanation on equity country indices, equity sectors, individual stocks, and stock portfolios. Finally, we show how to construct optimal beta- arbitrage strategies that maximize the expected return relative to a given benchmark.

  • Relative arbitrage
  • Market diversity
  • Beta
Citation (ISO format)
ODERDA, Gianluca et al. Beta-arbitrage strategies: when do they work, and why? In: Quantitative finance, 2015, vol. 15, n° 2, p. 185–203. doi: 10.1080/14697688.2014.938446
Main files (2)
Article (Accepted version)
Article (Submitted version)
ISSN of the journal1469-7688

Technical informations

Creation02/23/2016 9:50:00 AM
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