Betting Against Beta Factor In Country Equity Indexes

The three-gate gauntlet · genuine only if it clears all three and survives adversarial refutation

Gate 1

Survivorship-free

free

clean panel

Eliminated here

Gate 2

Placebo ≥ P95

outranked ~2 of 200 baskets

Gate 3

Cost-aware net

RF -0.93

net-negative after costs

Failed

Worst 12-month leg (RF)-0.86

−1.00 floor0

Every strategy here — winners included — loses in its worst 12 months. Depth is honest context, not the verdict.

Rejected at the luck gate — its net ranked no better than random baskets (below the P95 skill line).

Betting-against-beta buys low-beta assets and shorts high-beta ones, betting that the low-beta side earns a better risk-adjusted return. This is the country-index version of the Frazzini & Pedersen (2014) factor.

What we found

In our test the country-index BAB variant did not produce genuine rank skill. It sits at the 1st percentile of random baskets (placebo percentile 1), with a negative risk-adjusted RF of -0.93 and a worst-year RF of -0.86 — the same beta-bleed problem as the single-stock version. The result is consistent with residual short-beta exposure losing money over the window rather than a real low-beta premium, so we classify it as failed.

How we tested it

2005–2026 test windowmodelled liquidity-aware costssurvivorship free

Data: 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), country-index version
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.