Bad Beta, Good Beta

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Bad Beta, Good Beta

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dc.contributor.author Campbell, John
dc.contributor.author Vuolteenaho, Tuomo
dc.date.accessioned 2009-06-26T13:19:49Z
dc.date.issued 2004
dc.identifier.citation Campbell, John Y., and Tuomo Vuolteenaho. 2004. Bad Beta, Good Beta. American Economic Review 94(5): 1249-1275. en
dc.identifier.issn 0002-8282 en
dc.identifier.uri http://nrs.harvard.edu/urn-3:HUL.InstRepos:3122489
dc.description.abstract This paper explains the size and value "anomalies" in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and one reflecting news about the market's discount rates. Intertemporal asset pricing theory suggests that the former should have a higher price of risk; thus beta, like cholesterol, comes in "had" and "good" varieties. Empirically, we find that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns. The poor performance of the capital asset pricing model (CAPM) since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices. en
dc.description.sponsorship Economics en
dc.language.iso en_US en
dc.publisher American Economic Association en
dc.relation.isversionof http://dx.doi.org/10.1257/0002828043052240 en
dash.license LAA
dc.title Bad Beta, Good Beta en
dc.relation.journal American Economic Review en
dash.depositing.author Campbell, John

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  • FAS Scholarly Articles [7103]
    Peer reviewed scholarly articles from the Faculty of Arts and Sciences of Harvard University

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