The formal long-low-beta / short-high-beta factor, leverage-adjusted to be beta-neutral.
Frazzini & Pedersen · Journal of Financial Economics · published 2014 · original sample 1926–2012 (reported ≈ +8.5%/yr, t ≈ 4.9)
Growth of $1 in the long-short strategy, gross of trading and shorting costs. The dashed line marks the year the paper was published — everything to its right is out-of-sample.
$1 in the long-short strategy, gross of costs. Grey = the sample the paper had; blue = everything since.
The comparison the site is built around.
| Window | Return/yr | Vol | Sharpe | t-stat | Max DD |
|---|---|---|---|---|---|
| Paper's sample (1926–2012) | +7.7% | 11.5% | 0.71 | 5.2 | -55% |
| After publication (2015–2026) | +3.8% | 9.2% | 0.45 | 1.8 | -15% |
| Full sample (1930–2026) | +7.4% | 11.1% | 0.70 | 5.7 | -55% |
Is there a risk-adjusted alpha left once you control for the standard factors? Alpha is annualized; t-stats use Newey–West standard errors.
| Model | Alpha/yr | Alpha t | R² | Biggest loadings |
|---|---|---|---|---|
| CAPM (market only) | +9.5% | 4.9 | 0.01 | Mkt-RF -0.07 |
| Fama–French 3-factor | +7.9% | 4.6 | 0.10 | HML +0.34, Mkt-RF -0.02, SMB -0.00 |
| Fama–French 5-factor | +5.2% | 3.2 | 0.22 | RMW +0.49, CMA +0.41, HML +0.13 |
| FF5 + momentum | +3.6% | 2.2 | 0.27 | RMW +0.48, CMA +0.36, HML +0.21 |
Trailing 3-year Sharpe ratio. Long stretches below zero are common.
| 1930s | +5.0%/yr | Sharpe 0.29 |
| 1940s | +4.2%/yr | Sharpe 0.52 |
| 1950s | +5.0%/yr | Sharpe 0.81 |
| 1960s | +7.3%/yr | Sharpe 1.08 |
| 1970s | +7.8%/yr | Sharpe 0.98 |
| 1980s | +16.4%/yr | Sharpe 1.61 |
| 1990s | +7.4%/yr | Sharpe 0.63 |
| 2000s | +11.6%/yr | Sharpe 0.63 |
| 2010s | +9.5%/yr | Sharpe 1.55 |
| 2020s | +1.6%/yr | Sharpe 0.15 |
Explicitly a leverage-constraint premium, not a risk premium — see low beta above.
Lottery demand for high-beta names.
The construction leverages up the low-beta leg, which assumes you can actually borrow at near the risk-free rate. Critics show the returns concentrate in micro-caps and are sensitive to how you lag the beta estimate.
Long-short = AQR's published factor series. Value-weighted, US equities, monthly, gross of transaction and shorting costs. The original-paper figures are approximate and annualized for comparison.