Many studies have suggested that high beta stocks perform better than low beta stocks during bull markets. If investors accept the common definition of a bull market as a period of positive average return, however, this suggestion can be misleading.

The market model tells us that it is advantageous to hold high beta portfolios only if the return on the market exceeds the risk-free rate: Whenever the market return is less than the risk-free rate, even if it is positive, low beta portfolios will outperform high beta portfolios. It follows that the dividing line between bull and bear markets should be redefined to be the risk-free rate, rather than zero.