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Beta dispersion and market timing

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  • Kuntz, Laura-Chloé

Abstract

The beta dispersion, which is the spread of betas on a stock market, can be interpreted as a measure of market vulnerability. This study examines the economic idea of the beta dispersion and its application as a market return predictor. Based on the empirical beta dispersion observed in the US equity market, the study develops measures to predict future market returns. These dispersion measures have substantial predictive power for future market movements. Moreover, I show that the information content of beta dispersion can be successfully exploited by market timing strategies with the help of distributional regressions. The innovative application of this novel approach of modeling the relationship between multiple variables appears to be quite useful for timing strategies.

Suggested Citation

  • Kuntz, Laura-Chloé, 2020. "Beta dispersion and market timing," Journal of Empirical Finance, Elsevier, vol. 59(C), pages 235-256.
    • Handle: RePEc:eee:empfin:v:59:y:2020:i:c:p:235-256
    DOI: 10.1016/j.jempfin.2020.09.003
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    More about this item

    Keywords

    Time-varying beta; Market return predictability; Systematic risk; Distributional regression; Market timing; Investment strategies;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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