Absolute Delta Beta and Cross-Sectional Stock Returns

This paper explores the predictive power of the absolute delta beta (ADB) on future cross-sectional stock returns. By univariate portfolio analysis, bivariate portfolio analysis, and decomposition of predictive power, we find that the ADB can produce an excess return in the next month. The predictive power of ADB is contributed to the information of the left tail risk and the noise. Furthermore, we disclose that the ADB defined in the paper may measure the framing effect in the stock market, it has no persistence feature which implies it is a short-term behavior of the investors. The stocks with high ADB are always concentrated in retail investors. The investment strategies based on the ADB are better than the benchmark—the CSI300 index