Beliefs about beta : upside participation and downside protection

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A1 Alkuperäisartikkeli tieteellisessä aikakauslehdessä
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Embargo ends: 2026-07-12

Authors

Date

2025-09-01

Department

Department of Finance

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Mcode

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Language

en

Pages

40

Series

Review of Finance, Volume 29, issue 5, pp. 1397-1436

Abstract

In four large online experiments, we study how investors assess the relationship between stock portfolios and the market. Participants select or are randomly assigned a portfolio of stocks from a market index. They state portfolio return expectations conditional on different market outcomes, revealing implied beliefs about portfolio beta. We find general underestimation of beta which is stronger for downside beta. This asymmetry is amplified for participants who select their portfolio. They believe their portfolio goes up with the market but does not come down with it. We confirm biased beliefs about beta with financial professionals, monetary incentives, and alternative belief elicitation methods.

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Keywords

Beta, Diversification, G11, G12, G41, Overconfidence, Return expectations, Risk expectations, risk expectations, return expectations, overconfidence, diversification, beta

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DOI

10.1093/rof/rfaf028

Citation

Merkle, C & Ungeheuer, M 2025, 'Beliefs about beta : upside participation and downside protection', Review of Finance, vol. 29, no. 5, rfaf028, pp. 1397-1436. https://doi.org/10.1093/rof/rfaf028

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202509247364

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[article-cris] Kauppakorkeakoulu / BIZ