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.

  • $\begingroup$ 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.... $\endgroup$ – noob2 Aug 8 '18 at 17:33

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