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

Oderda, Gianluca
Messikh, Reda Jurg
Pictet, Olivier
Published in Quantitative Finance. 2015, vol. 15, no. 2, p. 185-203
Abstract 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.
Keywords Relative arbitrageMarket diversityBeta
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Other version: http://www.tandfonline.com/doi/abs/10.1080/14697688.2014.938446
Research group Geneva Finance Research Institute (GFRI)
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ODERDA, Gianluca et al. Beta-arbitrage strategies: when do they work, and why?. In: Quantitative Finance, 2015, vol. 15, n° 2, p. 185-203. https://archive-ouverte.unige.ch/unige:81265

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Deposited on : 2016-03-03

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