TY  - JOUR
AU  - Frazzini,Andrea
AU  - Pedersen,Lasse H.
TI  - Betting Against Beta
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 16601
PY  - 2010
Y2  - December 2010
UR  - http://www.nber.org/papers/w16601
L1  - http://www.nber.org/papers/w16601.pdf
N1  - Author contact info:
Andrea Frazzini
AQR Capital Management, LLC
Two Greenwich Plaza, 3rd Floor
Greenwich, CT 06830
Tel: 203 742 3894
E-Mail: andrea.frazzini@aqr.com

Lasse H. Pedersen
NYU Stern Finance
44 West Fourth Street
Suite 9-190
New York, NY 10012
Tel: 212/998-0359
Fax: 212/995-4233
E-Mail: lpederse@stern.nyu.edu
AB  - We present a model in which some investors are prohibited from using leverage and other investors’ leverage is limited by margin requirements. The former investors bid up high-beta assets while the latter agents trade to profit from this, but must de-lever when they hit their margin constraints. We test the model’s predictions within U.S. equities, across 20 global equity markets, for Treasury bonds, corporate bonds, and futures. Consistent with the model, we find in each asset class that a betting-against-beta (BAB) factor which is long a leveraged portfolio of low-beta assets and short a portfolio of high-beta assets produces significant risk-adjusted returns. When funding constraints tighten, betas are compressed towards one, and the return of the BAB factor is low.
ER  -