Bad Beta, Good Beta

Author: John Y. Campbell & Tuomo Vuolteenaho

"This paper explains the size and value “anomalies” in stock returns using an economically motivated two-beta model. We break the CAPM 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..."



The American Economic Review Vol. 94, No. 5 (Dec., 2004), pp. 1249-1275. Published by: American Economic Association
Source: https://www.jstor.org/stable/3592822

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