The Drivers of Predicted Beta

摘要

What drives beta? It's a practical concept that portfolio managers understand and measure. But do they know what is really responsible for producing the beta of a stock or portfolio? Jackson Wang and Jose Menchero provide a new analysis by which investors can decompose the beta of a stock or portfolio to predicted beta of individual factors, such as industry or style. The authors call this factor beta. In this Practical Applications report, Wang describes their approach and how it can be used to study cross-sectional variations in beta and to identify which factors are most responsible for the variations.