Beta arbitrage
InvestingDefinition
Strategy of going long low-beta stocks and short high-beta stocks, exploiting the empirical observation that low-beta has historically delivered higher risk-adjusted returns than high-beta (a violation of CAPM).
The "betting against beta" factor (Frazzini, Pedersen 2014) earned a documented premium of ~5-8% per year. Why it persists: leverage constraints prevent arbitrageurs from fully exploiting it.
The "betting against beta" factor (Frazzini, Pedersen 2014) earned a documented premium of ~5-8% per year. Why it persists: leverage constraints prevent arbitrageurs from fully exploiting it.