Abstract

http://ssrn.com/abstract=2408146
 


 



A Lottery Demand-Based Explanation of the Beta Anomaly


Turan G. Bali


Georgetown University - Robert Emmett McDonough School of Business

Stephen Brown


New York University (NYU) - Leonard N. Stern School of Business

Scott Murray


J. Mack Robinson College of Business - Georgia State University

Yi Tang


Fordham University - School of Business

January 1, 2016

Georgetown McDonough School of Business Research Paper No. 2408146

Abstract:     
The low (high) abnormal returns of stocks with high (low) beta - the beta anomaly - is one of the most persistent anomalies in empirical asset pricing research. This paper demonstrates that investors' demand for lottery-like stocks is an important driver of the beta anomaly. Portfolio and regression analyses show that lottery demand helps explain the beta anomaly. Factor models that include our lottery demand factor explain the abnormal returns associated with the beta anomaly. After controlling for lottery demand, portfolio and regression analyses detect a security market line slope that is significantly positive and insignificantly different from the market risk premium. Finally, the beta anomaly only exists when the price impact of lottery demand falls disproportionately on high-beta stocks and is concentrated in stocks with low levels of institutional ownership.

Number of Pages in PDF File: 89

Keywords: Beta, Beta Anomaly, Lottery Demand, Stock Returns

JEL Classification: G11, G12, G14


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Date posted: March 13, 2014 ; Last revised: January 29, 2016

Suggested Citation

Bali, Turan G. and Brown, Stephen and Murray, Scott and Tang, Yi, A Lottery Demand-Based Explanation of the Beta Anomaly (January 1, 2016). Georgetown McDonough School of Business Research Paper No. 2408146. Available at SSRN: http://ssrn.com/abstract=2408146 or http://dx.doi.org/10.2139/ssrn.2408146

Contact Information

Turan G. Bali
Georgetown University - Robert Emmett McDonough School of Business ( email )
3700 O Street, NW
Washington, DC 20057
United States
(202) 687-5388 (Phone)
(202) 687-4031 (Fax)
HOME PAGE: http://faculty.msb.edu/tgb27/index.html

Stephen Brown
New York University (NYU) - Leonard N. Stern School of Business ( email )
44 West 4th Street
New York, NY NY 10012
United States

Scott Murray (Contact Author)
J. Mack Robinson College of Business - Georgia State University ( email )
35 Broad St. NW
Atlanta, GA 30303
United States
404-413-7351 (Phone)
Yi Tang
Fordham University - School of Business ( email )
113 West 60th Street
Bronx, NY 10458
United States

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