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Bridge over ocean
1 July 2014 Financial Analysts Journal Volume 70, Issue 4

Low-Risk Investing without Industry Bets

  1. Clifford S. Asness
  2. Andrea Frazzini
  3. Lasse Heje Pedersen

The strategy of buying safe low-beta stocks while shorting (or underweighting) riskier high-beta stocks (“betting against beta”) has been shown to deliver significant risk-adjusted returns. Some have suggested, however, that such “low-risk investing” delivers high returns primarily because of industry bets that favor a slowly changing set of stodgy, stable industries. The authors refute this notion by showing that a strategy of betting against beta has delivered positive returns both as an industry-neutral bet within each industry and as a pure bet across industries.

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