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Academic audit

Failedequity XS low-beta

Betting Against Beta Factor in Stocks

Le parcours des trois portes · authentique seulement s’il passe les trois et survit à la réfutation adversariale
Gate 1
Sans biais de survivance
free
panel propre
Éliminé ici
Gate 2
Placebo ≥ P95
P0
devance ~0 paniers sur 200
Gate 3
Net après coûts
RF -0.97
net négatif après coûts
Échec
Pire jambe sur 12 mois (RF)-0.98
plancher −1.000
Chaque stratégie ici — gagnantes incluses — perd sur ses pires 12 mois. La profondeur est un contexte honnête, pas le verdict.
Rejeté à la porte de la chance — son net ne fait pas mieux que des paniers aléatoires (sous la ligne de compétence P95).

The betting-against-beta effect argues that low-beta stocks earn higher risk-adjusted returns than high-beta stocks, so the factor goes long low-beta names and short high-beta names to isolate that spread.

What we found

Built naively as a decile long/short (long low-beta, short high-beta), the factor failed our test. Its placebo percentile was 0, meaning it showed no rank skill above randomly formed baskets, and its worst-year risk factor was deeply negative. The reason is structural: this construction is net short market beta, so it gives up the equity premium in every bull year and bleeds over the window. In this simple, unhedged form the famous factor is not investable.

How we tested it
2005–2026 test windowmodelled liquidity-aware costssurvivorship free
  • Survivorship-free 1077-name US common-stock panel, 2005-2026. Realistic modelled costs.
  • Placebo / robustness test: real result vs random baskets or shuffled signals (real vs the 95th percentile of random)
Source: Frazzini & Pedersen (2014), "Betting Against Beta", J. Financial Economics
Read the paper ↗
← The Academic Audit — all 54 studies

Research, not investment advice. “Validated” factor-legs are market-neutral diversifying building blocks with a losing worst year — none is a standalone tradeable strategy. Metrics are cost-aware and modelled (not live fills); the 2005–2026 test window is out-of-sample versus the source paper. Dollar figures are not returns and are omitted by design.