Abstract

http://ssrn.com/abstract=2408146
 


 



Betting against Beta or Demand for Lottery?


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

August 1, 2015

Georgetown McDonough School of Business Research Paper No. 2408146

Abstract:     
The low (high) abnormal returns of stocks with high (low) beta, dubbed the betting against beta phenomenon, is the most persistent anomaly in empirical asset pricing research. This paper demonstrates that investors' demand for lottery-like stocks generates the betting against beta effect. Portfolio and regression analyses show that the betting against beta phenomenon disappears after controlling for lottery demand. The betting against beta phenomenon 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, a finding consistent with the lottery demand explanation. Factor models that include our lottery demand factor explain the abnormal returns associated with betting against beta. Finally, 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.

Number of Pages in PDF File: 85

Keywords: Beta, Betting Against Beta, Lottery Demand, Stock Returns, Funding Liquidity

JEL Classification: G11, G12, G14


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Date posted: March 13, 2014 ; Last revised: August 8, 2015

Suggested Citation

Bali, Turan G. and Brown, Stephen and Murray, Scott and Tang, Yi, Betting against Beta or Demand for Lottery? (August 1, 2015). 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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