Posts Tagged ‘ beta in finance ’

Betas of the low vol cohorts

April 4, 2012
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Betas of the low vol cohorts

How did the constraints affect portfolio betas, and how did the betas change over time? Previously “Low (and high) volatility strategy effects” created 6 sets of random portfolios — the so-called low vol cohorts — as of 2007 and showed their performance up to about a month ago. “Rebalancing the low vol cohorts” looked at … Continue reading...

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Beta is not volatility

March 26, 2012
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Beta is not volatility

The missing link between beta and volatility is correlation. Previously “4 and a half myths about beta in finance” attempted to dislodge several myths about beta, including that beta is about volatility. “Low (and high) volatility strategy effects” showed a plot of beta versus volatility for stocks in the S&P 500 for estimates from 2006.  … Continue reading...

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Low (and high) volatility strategy effects

March 23, 2012
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Low (and high) volatility strategy effects

Does minimum variance act differently from low volatility?  Do either of them act like low beta?  What about high volatility versus high beta? Inspiration Falkenblog had a post investigating differences in results when using different strategies for low volatility investing.  Here we look not at a single portfolio of a given strategy over time, but … Continue reading...

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Beta and expected returns

September 16, 2011
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Beta and expected returns

Some pictures to explore the reality of the theory that stocks with higher beta should have higher expected returns. Figure 2 of “The effect of beta equal 1″ shows the return-beta relationship as downward sloping.  That’s a sample of size 1.  In this post we add six more datapoints. Data The exact same betas of … Continue reading...

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A brief history of S&P 500 beta

September 8, 2011
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A brief history of S&P 500 beta

Data The data are daily returns starting at the beginning of 2007.  There are 477 stocks for which there is full and seemingly reliable data. Estimation The betas are all estimated on one year of data. The times that identify the betas mark the point at which the estimate would become available.  So the betas … Continue reading...

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Realized beta and beta equal 1

August 30, 2011
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Realized beta and beta equal 1

What does beta look like in the out-of-sample period for the portfolios generated to have beta equal to 1? In the comments Ian Priest wonders if the results in “The effect of beta equal 1″ are due to a shift in beta from the estimation period to the out-of-sample period.  (The current post will make … Continue reading...

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The effect of beta equal 1

August 29, 2011
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The effect of beta equal 1

Investment Performance Guy had a post about beta equal 1.  It made me wonder about the properties of portfolios with beta equal 1.  When I looked, I got a bigger answer than I expected. Data I have some S&P 500 data lying about from the post ‘On “Stock correlation has been rising”‘.  So laziness dictated … Continue reading...

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4 and a half myths about beta in finance

February 8, 2011
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4 and a half myths about beta in finance

Much of what has been said and thought about beta in finance is untrue. Myth 1: beta is about volatility This myth is pervasive. Beta is associated with the stock’s volatility but there is more involved.  Beta is the ratio of the volatility of the stock to the volatility of the market times the correlation … Continue reading...

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