An Analysis of the Beta Anomaly from an Idiosyncratic Volatility Perspective

Inhaltsverzeichnis (Table of Contents)

• Introduction
• Theoretical Background
• Empirical Results
  • Data and Methodology
  • The Beta Anomaly
  • Betting-Against-Correlation
    • BAC Leverage Effects
    • BAC and Size Effects
    • BAC and Sentiment Effects
  • BAB versus BAI
• Conclusions

Zielsetzung und Themenschwerpunkte (Objectives and Key Themes)

This master thesis investigates the phenomenon of idiosyncratic volatility (IVOL) and its relationship to the beta anomaly. It analyzes the potential for generating alpha through strategies that exploit the negative correlation between IVOL and stock returns.

• Investigate the relationship between IVOL and the beta anomaly
• Analyze the profitability of betting-against-correlation (BAC) strategies
• Explore the impact of leverage, size, and sentiment on BAC performance
• Compare the effectiveness of BAC strategies to traditional beta-anomaly (BAB) strategies and other IVOL-based strategies (BAI)
• Contribute to the understanding of market inefficiencies and alpha generation opportunities

Zusammenfassung der Kapitel (Chapter Summaries)

The thesis begins by providing a theoretical background on IVOL and the beta anomaly. It discusses the theoretical foundations and empirical findings related to these concepts. Chapter 3 delves into the empirical results of the research, starting with a description of the data and methodology used. The chapter then investigates the beta anomaly and analyzes the profitability of BAC strategies, considering leverage, size, and sentiment effects. It further compares the performance of BAC, BAB, and BAI strategies. The thesis concludes by summarizing the findings and discussing their implications for market participants and further research.

Schlüsselwörter (Keywords)

Idiosyncratic volatility, beta anomaly, betting-against-correlation, leverage effects, size effects, sentiment effects, alpha generation, market inefficiencies, empirical analysis, portfolio strategies.