Bulls, Bears and Stress Betas
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Diversified portfolios, those that invest beyond stock and bonds, may exhibit stress-betas. That is, they can experience periodic increases in beta, making them more sensitive to equity market moves. We find that stress-betas are not just a bear market phenomenon. Diversified portfolios have experienced increased betas during bull and bear markets. At a portfolio level, increases in correlation and the ratio of portfolio volatility to market volatility cause stress-betas.
UTCC International Journal of Business and Economics