Petkova and Zhang (2005) examine the relationship between beta and the market risk premium and find
A) a countercyclical beta is negative in good economies and positive in bad economies.
B) the beta of the HML portfolio is negative in good economies and positive in bad economies.
C) a cyclical beta is positive in good economies and negative in bad economies.
D) the beta of the HML portfolio is positive in good economies and negative in bad economies.
E) a countercyclical beta and the beta of the HML portfolio are negative in good economies and positive in bad economies.

Question

Quizplus · Accepted Answer

Petkova and Zhang (2005) find that both a countercyclical beta and the beta of the HML (High Minus Low, a factor in Fama-French three-factor model representing the difference in returns between stocks with high and low book-to-market values) portfolio exhibit the characteristic of being negative in good economies and positive in bad economies. This reflects the idea that countercyclical assets or strategies tend to perform opposite to the overall market trend, losing value in booming economies and gaining in downturns, which is consistent with the behavior described for both the countercyclical beta and the HML portfolio beta.

Petkova and Zhang (2005) Examine the Relationship Between Beta and the Market