Dynamic returns of beta arbitrage

Master thesis English OPEN
Nascimento, Mafalda (2017)
  • Subject: Cobar | Beta strategy | Arbitrage | Anomaly | :Ciências Sociais::Economia e Gestão [Domínio/Área Científica]
    mesheuropmc: food and beverages

This thesis studies the patterns of the abnormal returns of the beta strategy. The topic can be helpful for professional investors, who intend to achieve a better performance in their portfolios. Following the methodology of Lou, Polk, & Huang (2016), the COBAR measure is computed in order to determine the levels of beta arbitrage in the market in each point in time. It is argued that beta arbitrage activity can have impact on the returns of the beta strategy. In fact, it is demonstrated that for very high levels of arbitrage in the market, the abnormal returns become negative.
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