Replication data for: Bad Beta, Good Beta

Principal Investigator(s):  View help for Principal Investigator(s) John Y. Campbell; Tuomo Vuolteenaho

Version:  View help for Version V1

Name File Type Size Last Modified
BBGBdata.xls application/vnd.ms-excel 1.1 MB 12/02/2019 07:34:AM
LICENSE.txt text/plain 14.6 KB 12/02/2019 07:34:AM

Project Citation: 

Project Description

Summary:  View help for Summary This paper explains the size and value "anomalies" in stock returns using an economically motivated two-beta model. We break the beta of a stock with the market portfolio into two components, one reflecting news about the market's future cash flows and one reflecting news about the market's discount rates. Intertemporal asset pricing theory suggests that the former should have a higher price of risk; thus beta, like cholesterol, comes in "bad" and "good" varieties. Empirically, we find that value stocks and small stocks have considerably higher cash-flow betas than growth stocks and large stocks, and this can explain their higher average returns. The poor performance of the capital asset pricing model (CAPM) since 1963 is explained by the fact that growth stocks and high-past-beta stocks have predominantly good betas with low risk prices.

Scope of Project

JEL Classification:  View help for JEL Classification
      G12 Asset Pricing; Trading Volume; Bond Interest Rates
      G14 Information and Market Efficiency; Event Studies; Insider Trading


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V1 [2019-12-02]

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