publication . Report . Article . Preprint . 2012

Speculative Betas

Harrison G. Hong; David Sraer;
Open Access
  • Published: 01 Nov 2012
  • Publisher: National Bureau of Economic Research
Abstract
We provide a model for why high beta assets are more prone to speculative overpricing than low beta ones. When investors disagree about the common factor of cash-flows, high beta assets are more sensitive to this macro-disagreement and experience a greater divergence-of-opinion about their payoffs. Short-sales constraints for some investors such as retail mutual funds result in high beta assets being over-priced. When aggregate disagreement is low, expected return increases with beta due to risk-sharing. But when it is large, expected return initially increases but then decreases with beta. High beta assets have greater shorting from unconstrained arbitrageurs a...
Subjects
Medical Subject Headings: health care economics and organizations
free text keywords: Monetary economics, Economics, jel:G02, jel:G11, jel:G12
Funded by
EC| COGNITION
Project
COGNITION
Cognition and Decision-Making: Laws, Norms and Contracts
  • Funder: European Commission (EC)
  • Project Code: 249429
  • Funding stream: FP7 | SP2 | ERC
,
NSF| Values and Finance: A Study of Socially Responsible Investing
Project
  • Funder: National Science Foundation (NSF)
  • Project Code: 0850404
  • Funding stream: Directorate for Social, Behavioral & Economic Sciences | Division of Social and Economic Sciences
16 references, page 1 of 2

= 0:005. is then set to .48 to match the equity premium over 1970-2011. There are 56 assets shorted at equilibrium. This level of disagreement corresponds roughly 2.

the Mutual Fund Industry," Journal of Finance, 04 1999, 54 (2), 791{816.

Extrapolation, and Risk," Journal of Finance, December 1994, 49 (5), 1541{78.

National Bureau of Economic Research, Inc July 2004.

Economic Behavior & Organization, July 2002, 48 (3), 265{280.

tion Expectations," in \NBER Macroeconomics Annual 2003, Volume 18" NBER Chap-

ters, National Bureau of Economic Research, Inc, 2004, pp. 209{270.

Information," Journal of Finance, 1987, 42 (3), 483{510.

September 1977, 32 (4), 1151{68.

of Economics, November 1996, 111 (4), 1111{33.

ber 1999, 89 (5), 1279{1298.

nal of Political Economy, December 2003, 111 (6), 1183{1219.

tions of Risk," Journal of Finance, 1964, XIX (3), 425{442.

ing Journal of Financial Economics 2010.

o ro an 11 lio g , rWth tre re te is

16 references, page 1 of 2
Any information missing or wrong?Report an Issue