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Investor behavior and the beta anomaly: Who benefits from betting against beta?

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

Abstract

We investigate the relationship between the trading behavior of different investor types and the beta anomaly. Our results show that foreign institutions trade against beta on average, increasing their holdings of low-beta stocks and reducing exposure to high-beta stocks. This effect is most pronounced in the post-GFC period and when the beta anomaly is strong. In contrast, local investors as a group tend to chase beta by favoring high-beta stocks even when these stocks underperform. While local individual investors generally purchase high-beta stocks, they shift toward low-beta stocks when the anomaly generates losses. Our findings highlight how heterogeneous trading behavior across investor types contributes to the persistence of the beta anomaly.

Suggested Citation

  • Bradrania, Reza & Veron, Jose Francisco & Wu, Winston, 2026. "Investor behavior and the beta anomaly: Who benefits from betting against beta?," Economics Letters, Elsevier, vol. 258(C).
    • Handle: RePEc:eee:ecolet:v:258:y:2026:i:c:s0165176525005828
    DOI: 10.1016/j.econlet.2025.112745
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    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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