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I would like to analyze the beta anomaly following the method used in the following paper "The low-risk anomaly: A decomposition into micro and macro effects" by (Baker et al, 2018). (the link: https://www.tandfonline.com/doi/full/10.2469/faj.v70.n2.2?needAccess=true) I constructed the quintiles and ran the regressions, and subtracted the Low-High alphas as they have done in table 1 (panel A). However, in table 1 panel B they put the t statistics of the subtraction row (Low-High) which is something I did not understand how they compute it (the Low-High t statistics). enter image description hereAnyone can help with this?

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Yes. That is pretty easy. You have the returns for the high portfolio and for and low portfolio. You subtract one from the other and you have a time-series of returns for the High-Low portfolio. Then you just run the usual regression on that portfolio.

Hope this is clear.

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  • $\begingroup$ Oh! that is so easy. Thank you so much for your help. $\endgroup$
    – Sima
    Aug 29, 2022 at 17:40

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