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A Lottery-Demand-Based Explanation of the Beta Anomaly


  • Bali, Turan G.
  • Brown, Stephen J.
  • Murray, Scott
  • Tang, Yi


The low (high) abnormal returns of stocks with high (low) beta, which we refer to as the beta anomaly, is one of the most persistent anomalies in empirical asset pricing research. This article demonstrates that investors’ demand for lottery-like stocks is an important driver of the beta anomaly. The beta anomaly is no longer detected when beta-sorted portfolios are neutralized to lottery demand, regression specifications control for lottery demand, or factor models include a lottery demand factor. The beta anomaly is concentrated in stocks with low levels of institutional ownership and it exists only when the price impact of lottery demand is concentrated in high-beta stocks.

Suggested Citation

  • Bali, Turan G. & Brown, Stephen J. & Murray, Scott & Tang, Yi, 2017. "A Lottery-Demand-Based Explanation of the Beta Anomaly," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 52(6), pages 2369-2397, December.
  • Handle: RePEc:cup:jfinqa:v:52:y:2017:i:06:p:2369-2397_00

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    6. repec:bla:finmgt:v:48:y:2019:i:1:p:187-227 is not listed on IDEAS
    7. Betermier, Sebastien & Calvet, Laurent & Jo, Evan, 2019. "A Supply and Demand Approach to Equity Pricing," CEPR Discussion Papers 13974, C.E.P.R. Discussion Papers.
    8. repec:eee:jfinec:v:131:y:2019:i:3:p:736-760 is not listed on IDEAS

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