BAB as a Way to Improve Portfolio Management Efficiency

This work is devoted to the study of "betting against beta" as a factor that increases the efficiency of portfolio management. After a detailed study of the CAPM model, it was revealed that the aggregate market return and sensitivity of assets are not able to explain the abnormal return on the asset. Studies of this phenomenon have shown that to explain the profitability it is necessary to use additional variables that can fix the state of the economy and generate a positive return on assets in the long run. In many markets, an anomaly of low beta was revealed: assets with high beta ratios require lower risk-adjusted returns than assets with low beta, which means Sharpe's ratio should be higher for assets with low beta (Frazzini and Pedersen, 2014, Novy- Marx, 2014, Malkhozov et al., 2014, Baker, Bradley and Wurgler, 2011; Blitz and Vliet, 2007, etc.) The essence of the "betting against beta" is that the returns of a portfolio formed from assets of one class on the basis of their low estimated beta coefficients systematically outperforms portfolio returns from assets with the high beta. The presence of this anomaly allows investors to build an investment strategy that will increase the effectiveness of portfolio management. The use of the "betting against beta" effect is possible within the framework of building a zero-cost portfolio that goes long in low-beta stocks and shorts high-beta stocks.