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The beta anomaly and the quality effect in international stock markets

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  • Bradrania, Reza
  • Veron, Jose Francisco
  • Wu, Winston

Abstract

We investigate the beta anomaly and its relationship with stock quality in international stock markets. The beta anomaly exists in three aggregates (Europe, Pacific, and Global) and fourteen of the twenty-two country portfolios. We further demonstrate that stock quality explains the beta anomaly in international markets. The beta anomaly is statistically significant among junk (low-quality) stocks, and it does not exist among quality (high-quality) stocks. The results are robust in portfolio and regression analyses, both before and after controls. Finally, we show that the alphas of the beta anomaly estimated using the Fama–French–Carhart factor as well as Fama–French five-factor models disappear when augmented by the quality-minus-junk (QMJ) factor.

Suggested Citation

  • 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).
    • Handle: RePEc:eee:beexfi:v:38:y:2023:i:c:s2214635023000229
    DOI: 10.1016/j.jbef.2023.100808
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    More about this item

    Keywords

    Beta; Stock returns; Beta anomaly; Betting against beta; Abnormal returns; Stock quality;
    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

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