Abstract
The abnormal returns of the Betting Against Beta (BAB) strategy have attracted much interest among researchers and practitioners. Based on a market anomaly related to the Capital Asset Pricing Model, this strategy uses daily beta as a signal for portfolio construction. However, recent literature shows how some financial quantities, including beta, change between trading and non-trading periods. For this reason, we decided to compare the performance of the original BAB strategy with two BAB variants, where the signal for portfolio construction is given by intraday and overnight beta, respectively. Despite all strategies exhibiting positive cumulative returns, using the intraday beta signal leads to significantly higher performances. Further analyses show that the abnormal intraday BAB returns are mainly due to nano and micro-cap stocks which tend to outperform large-cap stocks, as well known from the literature.
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