Journal of Banking & Finance Vol. 116 2020
Beta uncertainty
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.
- DOI
- 10.1016/j.jbankfin.2020.105834
- Volume
- 116
- Pages
- 105834
- Language
- en
- Sources
- openalex crossref bibtex:phds-export.bib