The Booms and Busts of Beta Arbitrage

• 成果类型: Article
• 署名作者: Huang, Shiyang; Liu, Xin; Lou, Dong; Polk, Christopher
• 署名单位: University of Hong Kong; Renmin University of China; University of London; London School Economics & Political Science; Center for Economic & Policy Research (CEPR)
• 刊物名称: MANAGEMENT SCIENCE
• ISSN/ISSBN: 0025-1909
• DOI: 10.1287/mnsc.2023.4929
• 发表日期: 2024
• 关键词: beta arbitrage; arbitrage capital; crowded trading; return comovement

摘要

Low-beta stocks deliver high average returns and low risk relative to high-beta stocks, an opportunity for professional investors to arbitrage away. We argue that beta arbitrage activity generates booms and busts in the strategy's abnormal trading profits. In times of low arbitrage activity, the beta-arbitrage strategy exhibits delayed correction, taking up to three years for abnormal returns to be realized. In contrast, when arbitrage activity is high, prices overshoot and then revert in the long run. We document a novel positive feedback channel operating through firm leverage that facilitates these boom-and-bust cycles.