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REDUCING THE SHORT TERM VARIABILITY OF SMALL PORTFOLIO BETAS

By Bruce R. Kuhlman and Herbert J. Weinraub

Abstract

Management of portfolio risk is difficult if beta is nonstationary, due to an inability to predict the level of beta in subsequent periods. Since large, well diversified portfolios have stationary betas, this study focuses on the variability of small portfolio betas. Common stocks are combined into small portfolios based on their individual beta variability. The variability of the resultant portfolio betas is then compared to randomly generated portfolios. Results indicate it is possible to significantly reduce the variability of the portfolio beta by systematically combining stocks according to their individual beta variability

Year: 2011
OAI identifier: oai:CiteSeerX.psu:10.1.1.195.9755
Provided by: CiteSeerX
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