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Enhancing betting against beta with stochastic dominance

Research output: Contribution to Journal/Magazine › Journal article › peer-review

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Enhancing betting against beta with stochastic dominance. / Kolokolova, Olga; Xu, Xia.
In: Journal of Empirical Finance, Vol. 76, 101465, 31.03.2024.

Research output: Contribution to Journal/Magazine › Journal article › peer-review

Harvard

Kolokolova, O & Xu, X 2024, 'Enhancing betting against beta with stochastic dominance', Journal of Empirical Finance, vol. 76, 101465. https://doi.org/10.1016/j.jempfin.2023.101465

APA

Kolokolova, O., & Xu, X. (2024). Enhancing betting against beta with stochastic dominance. Journal of Empirical Finance, 76, Article 101465. https://doi.org/10.1016/j.jempfin.2023.101465

Vancouver

Kolokolova O, Xu X. Enhancing betting against beta with stochastic dominance. Journal of Empirical Finance. 2024 Mar 31;76:101465. Epub 2024 Jan 20. doi: 10.1016/j.jempfin.2023.101465

Author

Kolokolova, Olga ; Xu, Xia. / Enhancing betting against beta with stochastic dominance. In: Journal of Empirical Finance. 2024 ; Vol. 76.

Bibtex

@article{a609ae9f55fe4926b3ba8f6098c7011b,
title = "Enhancing betting against beta with stochastic dominance",
abstract = "The performance of the widely used betting-against-beta (BAB) investment strategy is improved by controlling for the stochastic dominance (SD) relation between individual stocks and the market portfolio. Dominating stocks, preferred by all risk-averse and prudent investors, are excluded from the short leg of the BAB strategy. Stocks that are dominated by the market are excluded from the long leg of the strategy. This prefiltering significantly enhances a wide range of performance and risk measures including abnormal returns relative to various factor models. The improvements are especially pronounced for the third-order SD, are robust to transaction costs and different market conditions.",
keywords = "Stochastic dominance, Market beta, Beta arbitrage, Betting against beta",
author = "Olga Kolokolova and Xia Xu",
year = "2024",
month = mar,
day = "31",
doi = "10.1016/j.jempfin.2023.101465",
language = "English",
volume = "76",
journal = "Journal of Empirical Finance",
issn = "0927-5398",
publisher = "Elsevier",

}

RIS

TY - JOUR

T1 - Enhancing betting against beta with stochastic dominance

AU - Kolokolova, Olga

AU - Xu, Xia

PY - 2024/3/31

Y1 - 2024/3/31

N2 - The performance of the widely used betting-against-beta (BAB) investment strategy is improved by controlling for the stochastic dominance (SD) relation between individual stocks and the market portfolio. Dominating stocks, preferred by all risk-averse and prudent investors, are excluded from the short leg of the BAB strategy. Stocks that are dominated by the market are excluded from the long leg of the strategy. This prefiltering significantly enhances a wide range of performance and risk measures including abnormal returns relative to various factor models. The improvements are especially pronounced for the third-order SD, are robust to transaction costs and different market conditions.

AB - The performance of the widely used betting-against-beta (BAB) investment strategy is improved by controlling for the stochastic dominance (SD) relation between individual stocks and the market portfolio. Dominating stocks, preferred by all risk-averse and prudent investors, are excluded from the short leg of the BAB strategy. Stocks that are dominated by the market are excluded from the long leg of the strategy. This prefiltering significantly enhances a wide range of performance and risk measures including abnormal returns relative to various factor models. The improvements are especially pronounced for the third-order SD, are robust to transaction costs and different market conditions.

KW - Stochastic dominance

KW - Market beta

KW - Beta arbitrage

KW - Betting against beta

U2 - 10.1016/j.jempfin.2023.101465

DO - 10.1016/j.jempfin.2023.101465

M3 - Journal article

VL - 76

JO - Journal of Empirical Finance

JF - Journal of Empirical Finance

SN - 0927-5398

M1 - 101465

ER -