Betting against beta in Brazil
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2017-06
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Unlike assumed by the CAPM, leverage and margin constraints prevent agents from simply leveraging or deleveraging their optimal allocations to reach their risk appetite. As a consequence, agents directly buy riskier securities to match their desired risk levels, creating an asymmetry in the risk-adjusted returns required for lowerbeta assets versus high-beta ones. This study aims at analyzing the dynamics of the betting against beta factor, a market-neutral, self-financed portfolio built to arbitrage the beta anomaly in the Brazilian equity market.