Beta bubbles

Petri Jylhä, Matti Suominen, Tuomas Tomunen

Research output: Contribution to journalArticleScientificpeer-review

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Abstract

We show that an increase in a stock’s breadth of institutional ownership or turnover is followed by a significant, but temporary, increase in its CAPM beta estimate and a decrease in its CAPM alpha. The increasing effect of breadth of ownership on beta estimates is mainly driven by short-term investors. These transitory trading-activity-driven components of beta estimates contribute to the empirical failure of the CAPM and the large returns to long-short portfolios that bet against beta. Relations between ownership breadth, turnover, and betas, which we document, help explain the puzzling fact that, on average, betas increase after seasoned equity offerings and stock splits and decrease after stock repurchases.
Original languageEnglish
Pages (from-to)1–35
JournalReview of Asset Pricing Studies
Volume8
Issue number1
DOIs
Publication statusPublished - Jun 2018
MoE publication typeA1 Journal article-refereed

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