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The Beta Anomaly in the Japanese Equity Market and Investor Behavior

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  • Sheridan Titman
  • Seiichiro Iwasawa
  • Tomonori Uchiyama

Abstract

It is well known that high-beta stocks are associated with a low alpha relative to the capital asset pricing model and to the Fama–French three-factor model. We show that the beta anomaly in the Japanese market is attributable to foreign institutional investors, not domestic individuals. Foreigners overweight high-beta stocks; the anomaly weakens or reverses when their investment increases and strengthens when it decreases; and they invest more in high-beta than low-beta stocks when increasing investment and sell high-beta more than low-beta stocks when reducing it. We do not find analogous results for individual investors. Our results suggest that the beta anomaly reflects a preference for high-beta securities by institutional investors aiming to beat a benchmark.

Suggested Citation

  • Sheridan Titman & Seiichiro Iwasawa & Tomonori Uchiyama, 2014. "The Beta Anomaly in the Japanese Equity Market and Investor Behavior," International Review of Finance, International Review of Finance Ltd., vol. 14(1), pages 53-73, March.
    • Handle: RePEc:bla:irvfin:v:14:y:2014:i:1:p:53-73
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    File URL: http://hdl.handle.net/10.1111/irfi.12023
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    References listed on IDEAS

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    Cited by:

    1. Bradrania, Reza & Veron, Jose Francisco, 2023. "The beta anomaly in the Australian stock market and the lottery demand," Pacific-Basin Finance Journal, Elsevier, vol. 77(C).
    2. Pedro Antonio Martín-Cervantes & María del Carmen Valls Martínez, 2023. "Unraveling the relationship between betas and ESG scores through the Random Forests methodology," Risk Management, Palgrave Macmillan, vol. 25(3), pages 1-29, September.
    3. Bradrania, Reza & Veron, Jose Francisco & Wu, Winston, 2023. "The beta anomaly and the quality effect in international stock markets," Journal of Behavioral and Experimental Finance, Elsevier, vol. 38(C).

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