Investing in the Beta Space
Forthcoming: Journal of Investing, Summer 2016
Posted: 21 May 2019
Date Written: August 3, 2015
Abstract
The beta space is a powerful way to map the investment strategies of semi-diversified investors. Three metrics define the beta space: regular or exogenous betas (x-βs), linked to macroeconomic cycles; endogenous betas (n-βs), related to innovation hazards; and a combination of the two — the total betas (t-βs). The beta space is the first to endow unsystematic risk with measurable entity; it debunks the myth that innovation entails high exogenous betas; and it suggests a simpler definition of style investing: growth investors tend to favor industries with large t-βs, whereas value investors do the opposite.
Keywords: systemic risk; total risk; portfolio management; value investing; growth investing
JEL Classification: G11,G12
Suggested Citation: Suggested Citation