# The utility function in Betting Against Beta

http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf

Betting Against Beta strategy is presented in the link above. Most of the theory and derivation is based on a utility function given in equation 1 (section 2). Where does that utility function come from and why does it look the way it does? The authors don't explain this in the paper.

• It is just the Excess return on the Stocks (the excess return on the risk free portion does not have to be added since it is zero) minus a penalty for variance. So it is just a tradeoff between excess return and variance just like in Markowitz et al.... – noob2 Aug 8 '18 at 17:33