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Does behavioral-motivated volatility effect explain the beta anomaly? Evidence from China

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  • Zhao, Lu
  • Lin, Lei

Abstract

We find that the beta anomaly in the Chinese stock market is mainly driven by behavioral effects measured by lottery demand or idiosyncratic risk. The betting against volatility factor that is closely related to behavioral effects produces significant positive alpha, while the alpha of the betting against correlation factor related to leverage constraints is insignificant. When a lottery demand or an idiosyncratic risk factor is added to the well-established factor models, the beta anomaly disappears.

Suggested Citation

  • Zhao, Lu & Lin, Lei, 2022. "Does behavioral-motivated volatility effect explain the beta anomaly? Evidence from China," Finance Research Letters, Elsevier, vol. 46(PA).
    • Handle: RePEc:eee:finlet:v:46:y:2022:i:pa:s154461232100307x
    DOI: 10.1016/j.frl.2021.102265
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    Cited by:

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    2. Xiong, Tao & Wang, Peng, 2023. "Institutional ownership and momentum in the Chinese A-share market," Pacific-Basin Finance Journal, Elsevier, vol. 79(C).

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    More about this item

    Keywords

    Betting against volatility; Lottery demand; Idiosyncratic risk;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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