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Reaching for Beta

Author

Listed:
  • Genc, Egemen
  • Moench, Emanuel
  • Pazarbasi, Altan

Abstract

Using equity mutual fund holdings and transactions, we show that managers actively tilt toward high-beta stocks when monetary policy is contractionary and short rates rise. This “reaching for beta†is persistent, elevates sector-wide net buying of high-beta stocks, and attracts fund inflows under tighter policy. It raises funds' raw but not risk-adjusted returns and induces temporary stock-level price pressure that subsequently reverts. We show that reaching for beta is consistent with fund managers counteracting investor outflows by boosting expected returns. Unlike reaching for yield in bonds, tighter policy increases risk-taking in equities, revealing a beta channel of monetary policy transmission.

Suggested Citation

  • Genc, Egemen & Moench, Emanuel & Pazarbasi, Altan, 2025. "Reaching for Beta," CEPR Discussion Papers 20812, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:20812
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    File URL: https://cepr.org/publications/DP20812
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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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