Details
| Original language | English |
|---|---|
| Article number | 105834 |
| Journal | Journal of Banking and Finance |
| Volume | 116 |
| Publication status | Published - 27 Apr 2020 |
Abstract
A stock's exposure to systematic risk factors is surrounded by substantial uncertainty. This beta uncertainty is both economically and statistically significantly priced in the cross-section of stock returns. Stocks with high beta uncertainty substantially underperform those with low beta uncertainty: a two-standard-deviation increase in the measure decreases average annual returns by 9.7%. These results cannot be explained by previously discovered determinants of cross-sectional stock returns. Aggregate beta uncertainty negatively predicts market excess returns in the short and medium term. We find supporting evidence for a mispricing explanation of the beta uncertainty premium.
Keywords
- Ambiguity, Beta, CAPM, Disagreement, Parameter uncertainty
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of Banking and Finance, Vol. 116, 105834, 27.04.2020.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Beta uncertainty
AU - Hollstein, Fabian
AU - Prokopczuk, Marcel
AU - Wese Simen, Chardin
PY - 2020/4/27
Y1 - 2020/4/27
N2 - A stock's exposure to systematic risk factors is surrounded by substantial uncertainty. This beta uncertainty is both economically and statistically significantly priced in the cross-section of stock returns. Stocks with high beta uncertainty substantially underperform those with low beta uncertainty: a two-standard-deviation increase in the measure decreases average annual returns by 9.7%. These results cannot be explained by previously discovered determinants of cross-sectional stock returns. Aggregate beta uncertainty negatively predicts market excess returns in the short and medium term. We find supporting evidence for a mispricing explanation of the beta uncertainty premium.
AB - A stock's exposure to systematic risk factors is surrounded by substantial uncertainty. This beta uncertainty is both economically and statistically significantly priced in the cross-section of stock returns. Stocks with high beta uncertainty substantially underperform those with low beta uncertainty: a two-standard-deviation increase in the measure decreases average annual returns by 9.7%. These results cannot be explained by previously discovered determinants of cross-sectional stock returns. Aggregate beta uncertainty negatively predicts market excess returns in the short and medium term. We find supporting evidence for a mispricing explanation of the beta uncertainty premium.
KW - Ambiguity
KW - Beta
KW - CAPM
KW - Disagreement
KW - Parameter uncertainty
UR - http://www.scopus.com/inward/record.url?scp=85085147718&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2020.105834
DO - 10.1016/j.jbankfin.2020.105834
M3 - Article
AN - SCOPUS:85085147718
VL - 116
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
M1 - 105834
ER -