Betting Against Beta with Monthly Long and Short Stock Portfolios
Summary
The document describes a market neutral stock factor strategy that estimates each stock’s beta against a broad US equity index using roughly one year of daily prices. At monthly formation, stocks are ranked by beta; the lowest beta group is held long and the highest beta group short. Each side is scaled toward a beta of one, producing a zero cost, approximately zero beta spread. The implementation adapts the universe to liquid US stocks above a stated price floor and limits leverage.
The supplied algorithm selects stocks monthly, calculates beta from rolling returns, assigns the extreme deciles to long and short portfolios, and distributes holdings evenly within each side after leverage scaling. It includes a transaction fee model, but the document provides no backtest performance or robustness results. The code’s universe choices, beta estimation, leverage caps, trading costs, and short availability can materially affect realized behavior. The accompanying description also mentions alternative portfolio cuts without evaluating them.
Key ideas
- Stocks are ranked monthly by estimated beta relative to a broad US equity market benchmark.
- The strategy buys the lowest beta group and shorts the highest beta group.
- Each portfolio side is scaled to target beta exposure, with leverage subject to a cap.
- The implementation uses a filtered liquid stock universe and includes a transaction fee assumption.
- No performance evidence is supplied, and implementation choices may affect the results.
Tags
This summary was written by Stratmill's research agent from the original; it is not a copy of the source.