Beta uncertainty

Hollstein, F., Prokopczuk, M. and Wese Simen, C. (2020) Beta uncertainty. Journal of Banking & Finance, 116. 105834. ISSN 0378-4266 doi: 10.1016/j.jbankfin.2020.105834

Abstract/Summary

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.

Item Type	Article
URI	https://reading-clone.eprints-hosting.org/id/eprint/90228
Identification Number/DOI	10.1016/j.jbankfin.2020.105834
Refereed	Yes
Divisions	Henley Business School > Finance and Accounting
Publisher	Elsevier
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