Enhanced Betting Against Beta with Stochastic Dominance
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Enhancing Betting Against Beta with Stochastic Dominance
Olga Kolokolova; Xia Xu
- Manchester University
- University of Manchester
- ?University of Manchester - Alliance Manchester Business School
- École Supérieure des Sciences Commerciales d’Angers
- ?ESSCA School of Management
Strategy in a nutshell
This strategy builds long-short portfolios using low-beta stocks filtered with third-order stochastic dominance. It excludes dominated stocks, balances long and short positions, and rebalances monthly for improved performance.
Economic rationale
The approach enhances low-beta investing by applying stochastic dominance to refine stock selection. It captures investor preferences under uncertainty and strengthens portfolio efficiency beyond traditional anomaly-based strategies.
Backtest performance
Annualised return9.01%
Volatility10.57%
Sharpe ratio0.85
Maximum drawdown-44%