104 Pages Posted: 13 Mar 2014 Last revised: 3 Dec 2016
Date Written: December 1, 2016
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. The beta anomaly is no longer detected when beta-sorted portfolios are neutralized to lottery demand, regression specifications control for lottery demand, or factor models include a lottery demand factor. The beta anomaly is concentrated in stocks with low levels of institutional ownership and it exists only when the price impact of lottery demand is concentrated in high-beta stocks.
Keywords: Beta, Beta Anomaly, Lottery Demand, Stock Returns, Institutional Ownership
JEL Classification: G11, G12, G14
Suggested Citation: Suggested Citation
Bali, Turan G. and Brown, Stephen and Murray, Scott and Tang, Yi, A Lottery Demand-Based Explanation of the Beta Anomaly (December 1, 2016). Georgetown McDonough School of Business Research Paper No. 2408146. Available at SSRN: https://ssrn.com/abstract=2408146 or http://dx.doi.org/10.2139/ssrn.2408146