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Home | Events | A Cross-Sectional Decomposition of Firms’ Market Betas
Seminar

A Cross-Sectional Decomposition of Firms’ Market Betas

  • Series
    Erasmus Finance Seminars
  • Speaker(s)
    Kris Jacobs (University of Houston, United States)
  • Field
    Finance, Accounting and Finance
  • Location
    Erasmus University Rotterdam, Campus Woudestein, Langeveld 5.06
    Amsterdam
  • Date and time

    November 10, 2026
    11:45 - 13:00

Abstract

We introduce a new cross-sectional model that generalizes the CAPM. Using the linear expansion property of covariance, we decompose firms’ CAPM betas into negative betas, which capture the negative covariances with other firms in the value-weighted market portfolio and provide a hedge against the market, and positive betas. These two betas sum to market beta, but only negative beta commands statistically and economically significant risk premia. We show how an economy with frictions can generate this factor structure, while the CAPM results from the limiting case without frictions. Our findings are robust against existing factors and characteristics, highlighting a distinct dimension of systematic risk and providing a partial explanation for several existing anomalies. Negative beta also differs from downside beta and semibetas.