TY  - JOUR
AU  - Campbell,John Y.
AU  - Vuolteenaho,Tuomo
TI  - Bad Beta, Good Beta
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9509
PY  - 2003
Y2  - February 2003
UR  - http://www.nber.org/papers/w9509
L1  - http://www.nber.org/papers/w9509.pdf
N1  - Author contact info:
John Y. Campbell
Morton L. and Carole S.
Olshan Professor of Economics
Department of Economics
Harvard University
Littauer Center 213
Cambridge, MA 02138
Tel: 617/496-6448
Fax: 617/495-7730
E-Mail: john_campbell@harvard.edu

Tuomo Vuolteenaho
Arrowstreet Capital
200 Clarendon Street #30
Boston, MA 02116-5021
Tel: 617/496-6284
Fax: 617/495-8570
E-Mail: tvuolteenaho@arrowstreetcapital.com
M1  - published as Campbell, Johny. and Tuomo Vuolteenaho. "Bad Beta, Good Beta," American Economic Review, 2004, v94(5,Dec), 1249-1275.
AB  - This paper explains the size and value  anomalies' in stock returns using an economically motivated two-beta model. We break the CAPM 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  bad' 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 CAPM since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices.
ER  -