West Loop Financial LLCRisk & The Two Faces Of Beta – West Loop Financial LLC https://www.westloopfinancial.com Evolutionize Site Wed, 19 Aug 2020 20:50:49 +0000 en-US hourly 1 https://wordpress.org/?v=5.1.22 Risk & The Two Faces Of Beta https://www.westloopfinancial.com/2014/04/14/risk-the-two-faces-of-beta/ https://www.westloopfinancial.com/2014/04/14/risk-the-two-faces-of-beta/#respond Mon, 14 Apr 2014 15:00:17 +0000 http://evolvemypractice.com/?p=805 There’s a growing body of evidence that beta is actually a two-sided, not a one-sided, “coin,” and those two faces are separated by perceptions of risk. Being risk averse, most investors care more than just about the standard deviation of returns (volatility), assigning more weight to downside deviations from the mean than to upside deviations....

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]]> There’s a growing body of evidence that beta is actually a two-sided, not a one-sided, “coin,” and those two faces are separated by perceptions of risk.

Being risk averse, most investors care more than just about the standard deviation of returns (volatility), assigning more weight to downside deviations from the mean than to upside deviations. They also care about when that volatility appears.

Thus, assets that do poorly in bad times, such as in recessions when labor capital risk increases, should carry large risk premiums. In other words, that’s a risk-based explanation for the value premium, as well as the momentum premium. And that’s what the research is showing.

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