The Conditional Relation between Beta and Returns

Conditional risk–return relationship in a time-varying beta model

“…Using S&P 500 daily data from 1987:11-2003:12, we find a positive risk-return relationship in the up market (positive market excess returns) and a negative relationship in the down market (negative market excess returns). This supports the argument by Pettengill, Sundaram and Mathur (1995), who use a constant beta model. However, our model outperforms theirs by eliminating the unexplained returns and improving the accuracy of the estimated risk price.…”

The cross-sectional relationship between stock returns and domestic and global factors in the Chinese A-share market

“…For example, Kothari, Shanken and Sloan (1995) suggest a beta effect but argue that beta alone cannot explain all variation in stock returns. Pettengill, Sundaram and Mathur (1995) propose the significant conditional relationship between beta and stock returns in the up and down market. Heston, Rouwenhorst and Wessels (1999) find that average stock returns are positively related to beta and negatively related to firm size.…”

A New Measure of Equity Duration: The Duration-Based Explanation of the Value Premium Revisited

“…This dummy accounts for the fact that during periods when the market return is below the risk-free rate, the relationship between stock returns and beta is reversed. More precisely, high-beta stocks should have lower returns when the risk premium is negative (Pettengill et al, 1995). The fixed firm effect allows the returns of some company to be on average higher than its risk exposure would predict, whereas other companies provide lower returns.…”