Скачать или смотреть Speculative Betas: Resolving the Puzzle of Puzzles and Implications for Asset Management Part 1/2

By Prof Harrison Hong, John Scully '66 Professor of Economics and Finance
Department of Economics, Princeton University

Abstract
The key prediction of the Capital Asset Pricing Model and the fundamental tenet of modern finance is that high beta assets that co-vary with the market should command low prices or high expected returns compared to low beta ones. Rational risk-averse investors stuck with market risk and seeking diversification prefer low beta to high beta assets, thereby driving the positive association between beta risk and return. However, low beta stocks with low risk have over many long periods outperformed high beta stocks with high risk by a significant margin.

We offer a resolution of this low-risk/high-return puzzle premised on investor disagreement or speculation about the macro-economy and institutional short-sales constraints. High beta assets are more sensitive to macro-disagreements than low beta ones and hence experience a greater divergence-of-opinion about their cash-flows. Costly short-selling then results in high beta assets experiencing binding short-sales constraints and being over-priced. In other words, high beta assets are naturally more speculative than low beta ones and prone to be over-priced because many institutions such as mutual funds are prohibited from shorting. We verify a number of key implications of our theory and draw lessons for the practice of asset management.