Betting Against Beta in the Indian Market

22 Pages Posted: 10 Jul 2014

See all articles by Sobhesh Kumar Agarwalla

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad

Joshy Jacob

Indian Institute of Management

Jayanth Rama Varma

Indian Institute of Management (IIM), Ahmedabad

E Vasudevan

Date Written: July 4, 2014

Abstract

Recent empirical evidence from different markets suggests that the security market line is flatter than posited by CAPM. This flatness implies that a portfolio long in low-beta assets and short in high-beta assets would earn positive returns. Frazzini and Pedersen (2014) conceptualize a BAB factor that tracks such a portfolio. We find that a similar BAB factor earns significant positive returns in India. The returns on the BAB factor dominate the returns on the size, value and momentum factors. We also find that stocks with higher volatility earn relatively lower returns. These findings indicate overweighting of riskier assets by leverage constrained investors in the Indian market.

Keywords: CAPM, Betting against beta, BAB factor, leverage constraint, emerging markets

JEL Classification: G11, G12, G14, G15

Suggested Citation

Agarwalla, Sobhesh Kumar and Jacob, Joshy and Varma, Jayanth Rama and Vasudevan, E, Betting Against Beta in the Indian Market (July 4, 2014). Available at SSRN: https://ssrn.com/abstract=2464097 or http://dx.doi.org/10.2139/ssrn.2464097

Sobhesh Kumar Agarwalla

Indian Institute of Management (IIM) Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India
91.79.66324865 (Phone)

Joshy Jacob (Contact Author)

Indian Institute of Management ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

Jayanth Rama Varma

Indian Institute of Management (IIM), Ahmedabad ( email )

Vastrapur
Ahmedabad, Gujarat 380 015
India

HOME PAGE: http://www.iimahd.ernet.in/~jrvarma/

No contact information is available for E Vasudevan

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