Beta Bubbles

Petri Jylhä, Matti Suominen, Tuomas Tomunen
2017 Review of Asset Pricing Studies  
We show that an increase in a stock's breadth of institutional ownership or turnover is followed by a significant but temporary increase in its CAPM beta estimate and a decrease in its CAPM alpha. The increasing effect of breadth of ownership on beta estimates is mainly driven by short-term investors. These transitory, trading activity driven components of beta estimates contribute to the empirical failure of the CAPM and the large returns to long-short portfolios that bet against beta. In
more » ... ainst beta. In addition, the relations between ownership breadth, turnover, and betas that we document help explain the puzzling fact that on average betas increase after seasoned equity offerings and stock splits, and decrease after stock repurchases.
doi:10.1093/rapstu/rax014 fatcat:kpqfqei4gzhwzolesgr2ympnmq