Questions tagged [beta]
The beta tag has no usage guidance.
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1answer
32 views
if the risk-free interest rate increases, and nothing else changes, is the market portfolio still efficient?
I think the response is no but I don't know why
If so, Stocks with betas greater than one will be buying opportunities and stocks with betas less than one will be selling opportunities because I can ...
0
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2answers
78 views
Why we can't lower a volatility of a portfolio (without changing expected return) by substituting a zero beta stock with a risk free asset?
part of the answer is that a zero-beta stock must be negatively correlated with other stocks in the portfolio. So having a zero beta stock can decrease the volatility. Does that mean that the ...
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0answers
33 views
CB-CAPM: how should an agents consumption be interpreted in CB-CAPM?
I have read chapter 9 from Intermediate Financial Theory, Jean-Pierre Danthine & John B. Donaldson (2005) to understand consumption based CAPM and some stuff I don't understand that well in the ...
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0answers
25 views
How does funding liquidity affect bets against beta?
The well-known paper Betting Against Beta by Frazzini and Pedersen predicts the following:
I don't really get the intuition here. Why is there a contemporaneous loss for the BAB factor, and yet, at ...
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0answers
38 views
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 ...
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38 views
Creating topic specific index
I am trying to create topic specific indecies in order to see how a single security performs against it. For instance, exposure to car sales. If I put VW, GM, Tesla and Fiat into an index, is it ...
1
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1answer
90 views
What does leverage have to do with beta? [closed]
Given a portfolio $P$ with return $R$ and market-beta $\beta$, we have
$$E (R - R_f) = \beta (E R_M - R_f)$$
Now, what does leveraging $P$ have to do with $\beta$? How it is affected if we leverage ...
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2answers
108 views
Zero Beta Portfolio in R
I am trying to solve the zero portfolio problem in R.
Given n assets, the objective function is to minimize the variance of the portfolio
$$Min_x\;\; \frac{1}{2}x^T\Sigma x$$
subject to
$$COV\left(x^...
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0answers
92 views
Portfolio risk analysis
I would like to ask you if somone knows how to generate risk measures (such as VaR, Beta, Drawdown, Volatility, etc...) over a Portfolio that hold positions for approximately 7 working days.
Imagine ...
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0answers
35 views
Equity Beta for Real Estate?
Before I start running basic linear regressions of real estate indices versus public equity indices, I wanted to ask what research has already been done in this area and what resources are publicly ...
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0answers
56 views
Why does a low deposit beta impact asset sensitivity for banks?
(I apologize if this question doesn't fit this site since it's not exactly quantitative, but I don't know a better forum)
Why does a low deposit beta impact asset sensitivity? Another question I was ...
3
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1answer
112 views
What is the industry standard way of calculating and annualizing performance metrics?
Say I am looking at a performance report for a hedge fund manager who trades mostly equities, and they provide me a list of monthly returns for the past 5 years. What is the industry standard way to ...
2
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1answer
298 views
Calculating beta to market
Let's say we want to compute beta to S&P500 of a portfolio, using 3 years of weekly returns, as of today. We would take each stock in the portfolio and regress the weekly returns of that stock ...
1
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0answers
84 views
SPX/VIX Implied Beta Calculation
In https://globalmarkets.bnpparibas.com/r/Volatility_Express_20171128.pdf?t=BG3REXwMP3NZJRN7wY5Vt&stream=true, it states that
3M VIX/SPX implied Beta = (VIX 3M IVOL*VIX 3M futures)/SPX 3M IVOL
...
1
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1answer
65 views
In the “betting against beta” paper, what exactly is the “BAB factor”?
I refer here to the paper "Betting against beta" by Pedersen and Frazini.
In the model, they construct the following factor, on page 5.
I don't quite understand how this portfolio is being ...
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2answers
297 views
Efficient algorithm for calculating Beta coefficient
I'm using Python/Pandas. Using naive nested for-loops to do Beta calculation for all ~5k stocks by ~5k days (moving window ~250 days) is unbearably slow. Is there any fast and elegant way to ...
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0answers
59 views
How to verify if beta “works” for hedging?
Suppose you want to calculate the beta of a stock to an index using weekly returns. If the stock is sufficiently volatile, and you use few enough observations, it is possible that the absolute value ...
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1answer
45 views
How to find beta from the information given? [closed]
This is an exam question. I know that to find beta I need the covariance between the portfolio and asset A but don't know how to find it.
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1answer
54 views
[Notation Query ]Expressing matrix as summation over product of vectors (Coefficient of Regression)
The coefficient of regression $\beta$ is often expressed as:
$\beta = (X^TX)^{-1}X^Ty$
I came across the notation below. Can someone help me visualize how the summation of column vectors $x_i$ is ...
1
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1answer
71 views
Period length and maximum data points on estimating the 5-year Beta-factor
I currently read chapter 8 Beta from Bali, Engle and Murray's book Empirical Asset Pricing: The Cross Section of Stock Returns and do not understand their estimation on the five-year Beta-factor (...
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0answers
74 views
Beta of options based strategy
This is probably a simple/dumb question, but I am not getting it.
As per GMO's recent Insight:
Second, as can be inferred from Exhibit 1, put writing strategies have
a low beta to the equity ...
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0answers
40 views
Changing the frequency of 5-min returns/realized volatility of different products
I stumbled upon a problem of converting the returns and volatility of high frequency data to daily ones. I start with 1-minute returns, then calculate the 5-minute realized variance as the sum of the ...
3
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0answers
461 views
Creating Factor mimicking portfolio returns
I have some trouble understanding how to create factor mimicking portfolio returns. As pointed out in this question, Tsay provides a small description, but I am unsure if my procedure is correct. In ...
6
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1answer
230 views
Simple mean reversion strategy portfolio construction
I had a quick idea I wanted to test, but am not sure of the correct way to size bets. Basically, I think that for a given index (say S&P), I want to be long under performers and short over ...
3
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0answers
37 views
If beta is used by all investors consistently, can it become more efficient to measure risk?
Let's say that today beta only accounts for 8% of the stock's variability, i.e. its R squared is 0.08.
If investors use beta to determine discount rates and calculate NPV, etc., can this 8% increase ...
2
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1answer
68 views
How to Deal With Betas when variance is Zero?
To calculate a beta, I was using the following formula(Considering $ra$ as returns of $a$ and $rb$ as returns of $b$):
$$
\beta = { cov(ra, rb) \over var(rb)}
$$
As a software developer, I ...
0
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1answer
32 views
Portfolio return through beta [closed]
Considering the beta value of the three assets in my portfolio simulation and the weights of the assets, i have computed the beta of the portfolio itself.
How can i calculate the expected return of ...
3
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1answer
117 views
Trying to replicate the Beta of Yahoo in R but am getting an answer that is way off
Yahoo calculates the Beta by using 3 years of monthly returns and using the S&P 500 as a market proxy but I cannot seem to replicate this or even get close using R. I downloaded the data from ...
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0answers
56 views
Mathematical quantification of compensation for risk
I am learning about the CAPM, and still new to this. In this framework, given a market portfolio M, and a portfolio P, we regress the excess return of the portfolio $r_P$ versus the excess return of ...
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1answer
59 views
Multi-Factor Beta Help
I'm supposed to find a risk factor that could explain a stock (I chose Netflix) returns.
Then, I am to calculate the beta with respect to the factor I suggested as part of a multi-factor model with ...
0
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0answers
113 views
Pairs Trading Beta - beta look-back period differing from other inputs?
The pairs trading system I developed in Python is based on short term fluctuations - 15-minute intervals for the price data. Say I'm using a 30-period look-back for the beta calculation:
...
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2answers
306 views
Beta in foreign exchange market
Would it make sense to use a regression to calculate beta for returns on a foreign exchange currency (regressed on a market average of all currencies)?
Would the beta make sense? (why/why not)
...
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1answer
215 views
How high can Beta be in CAPM?
I recently got an interview question for a junior analyst role asking if risk could be infinite in CAPM, and I wasn't sure how to answer it. I don't see how an asset could be infinitely more volatile ...
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1answer
2k views
How can I calculate Fama-French Beta, RMW and CMA factor for a particular stock?
I already have a method of calculating Size: the natural logarithm of the market value of equity at the end of the fiscal year.
But how to account for the Market Risk Premium, RMW, CMA and MOM ...
0
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1answer
74 views
Converting international equity returns to USD
Background: I am trying to replicate some results from the Betting Against Beta paper by Frazzini & Pedersen (FP). (http://www.econ.yale.edu/~af227/pdf/Betting%20Against%20Beta%20-%20Frazzini%...
0
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1answer
224 views
How do I calculate levered equity beta without unlevered equity beta? [closed]
I'm doing an assignment where I have liabilities including market and book values of long-term debt.
I also have capital including common stock, paid in capital, and accumulated earnings.
I've been ...
3
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1answer
157 views
Is this the correct way to hedge two securities against each other?
Let's say I believe that $ts_1$ and $ts_2$ move together and I would like to pairs trade them. Am I correct in understanding that to hedge them against each other I would get their $Var_1$, $Var_2$, ...
1
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1answer
556 views
How to “Standard Beta Hedge”?
Let's say I have 2 time-series, how would I "standard beta hedge" them against each other? For example, what if the position in 1 timeseries is 100 shares at 16 USD per share. Another time-series is ...
0
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1answer
77 views
Two definitions of Beta
I have seen two definitions of Beta
one is
$$\beta = \rho\dfrac{\sigma_{asset}}{\sigma_{market}}$$
Here $\rho$ is the correlated coeffient
another one is
$$\beta = \dfrac{r_{expect} - r_{risk\ free}}{...
0
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2answers
286 views
What is the best benchmark index for computing the beta of a multinational company?
I'm running a valuation of a multinational company listed on the AEX (Amsterdam Eurononext). The company has operations in Europe (70%), US (25%) and other (5%). I have historic stock data until from ...
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1answer
140 views
Finance beta: normally distributed?
If we assume normally distributed return (or normally distributed log Returns) for an asset and the market, can be then also say that the betas derived by this are also normally distributed?
How ...
1
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1answer
1k views
What is the Beta of an efficient portfolio?
I'm beginning to learn Portfolio Theory and I want to understand the Beta and its value for efficient portfolios.
An efficient portfolio is the one that gives the best expected return for an ...
0
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1answer
651 views
Historical beta: Beta estimation for which time horizon?
In practice historical beta is the most used approach for calculating beta.
Some one can use i.e. the last 6 month daily returns of stock i and market m to calculcate this.
Nevertheless I am ...
0
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1answer
391 views
Low beta and high correlation
Assuming that time period used to calculate the beta and correlation between an index and an asset is the same, is it possible to observe low beta while having high correlation?
If yes, how would ...
1
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1answer
153 views
How reliable is beta as a measure of risk when investing lwith a long horizon
Beta is the correlation of a company's stock price to that of the overall market. As such it gives insight in how volatile a stock's price has been in reltation to the market, thus, how risky the ...
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1answer
1k views
Creating a Beta-Neutral Portfolio
Given a portfolio of assets (say 10) and trading signal (1=Hold):
...
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2answers
133 views
Interpretation of Excess Return
How is excess return defined for a given asset?
There are altogether two different definitions for excess return used in the calculation of alpha and beta and I'm unable to understand which one ...
0
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1answer
454 views
Can the net portfolio's beta be different from the sum of long and short betas of the portfolio?
The way I calculate it is summing up the weighted beta of long and shorts but I saw a table where this wasn't the case so I am wondering if this is not the correct way.
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0answers
92 views
Levered beta with changing equity/debt ratios
I know how to calculate a bottom up levered beta for a privately held and not publicly traded company with Hamada (Proof of Hamada's Formula (Relationship between levered and unlevered beta)) and ...
3
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1answer
257 views
Dollar-Neutral in addition to Market-Neutral?
What is the point/benefit of using a dollar-neutral strategy in addition to a Beta-neutral strategy? What exactly does a dollar-neutral strategy buy the investor? What's useful about balancing long ...
