I'm reading this paper by Andrea Frazzini and Lasse Heje Pedersen (http://pages.stern.nyu.edu/~lpederse/papers/BettingAgainstBeta.pdf) - and I have searched on youtube and here aswell but I can't find any other paper or discussion forum about this topic.

Have any of you something clever to say about this idea with betting against beta. I simply don't understand why one will bet against beta and after reading the paper by F&L I neither understand how high beta (risk) is low alpha (return). Shouldn't be vice versa that high beta gives high alpha?

Hope some of you have worked with this before and can give an good intuition understanding of this topic.

Best Regards, Toni

  • You might want to look at the book Stocks for the Long Run by Siegel. It covers a lot of the same points but in a less technical manner. The basic point is that high beta stocks have lower returns over the long run than low beta stocks. In the Efficient Market Theory, people would need to be compensated for the volatility, but in reality they aren't.
    – zeta-band
    Commented Jun 8, 2018 at 16:10

1 Answer 1


I neither understand how high beta (risk) is low alpha (return).

alpha is excess risk adjusted return. The expected return of a security or portfolio with respect to some benchmark is beta times the expected benchmark's return. The alpha is the actual return in excess of that expectation.

So yes, portfolios with higher risk are expected to get higher returns, but that is measured by beta, not alpha.

Just reading the abstract of that paper, it seems that their premise is that since high-beta stocks are generally in higher demand, their price will be inflated ("bid-up"), and thus their actual excess return will be lower.

  • D.Stanley, Thank you so much for that insight. So it can be summed op to something like: Demand for high beta stock (increasing) -> expected rate of return (decreasing). I think that the definition of alpha went wrong, and that the paper talks about demand of the high beta stock which now makes sense.
    – Toni
    Commented Jun 8, 2018 at 16:27

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