A trading strategy with dual-beta estimates. Issue 5 (21st February 2022)

• Record Type: Journal Article
• Authors: Chong, James
• Is Part Of: Managerial finance. Volume 48:Issue 5(2022)
• Page Start: 720
• Page End: 732
• Publication Date: 2022-02-21
• Subjects: Dual-beta model -- Trading strategy -- Fama and French; Corporations -- Finance -- Periodicals; Business enterprises -- Finance -- Periodicals; 658.1505
• DOI: 10.1108/MF-07-2021-0310
• Languages: English
• ISSNs: 0307-4358

Abstract

Abstract : Purpose: The purpose of this paper is to adopt a trading strategy using upside and downside beta estimates. Design/methodology/approach: With daily data from April 30, 1997 to April 30, 2021, the author utilizes the dual-beta model when estimating upside and downside betas, in constructing and rebalancing a portfolio from a buy list of Dow Jones Industrial Average component stocks. Benchmarks include the S&P 500 Total Return index, Invesco S&P 500 Low Volatility ETF (SPLV) and iShares MSCI USA Min Vol Factor ETF (USMV). The dual-beta portfolio performance is assessed by economic cycles and by the Fama-French five-factor model. Findings: The dual-beta portfolio outperforms the benchmarks for the whole period under study as well as the majority of sub-periods. It is the only strategy with a statistically positive and economically significant risk-adjusted return. Originality/value: The author offers a simple stock trading strategy for generating wealth.