Journal of Financial Economics Vol. 129 No. 2 2018
Non-myopic betas
Abstract
An overlapping generations model with investors having heterogeneous investment horizons leads to a two-factor asset pricing model. The risk premiums are determined by the exposure to the market (myopic betas) and the future return on the efficient portfolio (non-myopic betas), which is identified nonparametrically from equilibrium. Non-myopic betas are priced in the cross-section of stocks, producing increasing and economically significant risk-return relation. In the model with funding constraints, low non-myopic beta stocks deliver higher risk-adjusted returns. Empirically, a betting against non-myopic beta portfolio generates superior performance relative to common factor models and is negatively correlated with the market betting against beta portfolio.
- DOI
- 10.1016/j.jfineco.2018.05.004
- Volume
- 129
- Issue
- 2
- Pages
- 357-381
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref