Beta Risk in the Cross-section of Equities

Ali Boloorforoosh, Peter Christoffersen, Mathieu Fournier*, Christian Gourieroux

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review


We develop a conditional capital asset pricing model in continuous time that allows for stochastic beta exposure. When beta comoves with market variance and the stochastic discount factor (SDF), beta risk is priced, and the expected return on a stock deviates from the security market line. The model predicts that low-beta stocks earn high returns, because their beta positively comoves with market variance and the SDF. The opposite is true for high-beta stocks. Estimating the model on equity and option data, we find that beta risk explains expected returns on low- and high-beta stocks, resolving the “betting against beta” anomaly.
Original languageEnglish
JournalReview of Financial Studies
Issue number9
Pages (from-to)4318-4366
Number of pages49
Publication statusPublished - Sep 2020

Bibliographical note

Published online: 20 December 2019.

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