Multifacets of Beta

We revisit the relationship between betas and cross-sectional asset returns, by investigating asymmetric responses of asset returns to the market portfolio return and their relationship with firm characteristics. We demonstrate that post-formation portfolios in asset pricing tests, which are proposed to avoid accepting false hypotheses, tend to reject the null hypotheses far more than expected. Using contemporaneous betas and returns in the asymmetric response model, we find that asymmetric betas, together with bid-ask spread or idiosyncratic volatility, explain cross-sectional asset returns. Interestingly, coefficients on up betas are far larger than those on down betas. When market returns are positive, large, value, past winners, and profitable stocks respond to the market much higher than other stocks