Agency-Based Asset Pricing and the Beta Anomaly

51 Pages Posted: 29 May 2012 Last revised: 20 Dec 2012

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David Blitz

Robeco Quantitative Investments

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Date Written: May 28, 2012


I argue that delegated portfolio management can cause the equilibrium relation between CAPM beta and expected stock returns to become flat, instead of linearly positive, and propose an alternative to the widely used Fama and French (1993) 3-factor asset pricing model which incorporates this agency effect. An empirical comparison of the two models shows that the agency-based 3-factor model is much better at explaining the performance of portfolios sorted on beta or volatility, and at least as good at explaining the performance of various other test portfolios, including those the original 3-factor model was designed to explain. These results are consistent with empirical studies which have previously established that market beta does not appear to be a priced risk factor in the cross-section of stock returns.

Keywords: asset pricing, beta anomaly, volatility anomaly, Fama-French 3-factor model, agency problems, delegated portfolio management

JEL Classification: C12, G11, G12, G14

Suggested Citation

Blitz, David, Agency-Based Asset Pricing and the Beta Anomaly (May 28, 2012). Available at SSRN: or

David Blitz (Contact Author)

Robeco Quantitative Investments ( email )

Weena 850
Rotterdam, 3014 DA

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