Asset Pricing Anomalies and the Low-Risk Puzzle

49 Pages Posted: 1 Oct 2018 Last revised: 26 Jun 2019

See all articles by Ruomeng Liu

Ruomeng Liu

University of Nebraska at Lincoln

Date Written: June 14, 2019


The original observation in Black, Jensen and Scholes (1972) that the security market line is too flat – the beta anomaly – is a driving force behind a number of well-documented cross-sectional asset pricing puzzles. I document that returns to a broad set of anomaly portfolios are negatively correlated with the contemporaneous market excess return. I show that this negative covariance implicitly embeds the beta anomaly in these cross-sectional return puzzles. Taking into account the exposure to the beta anomaly attenuates the economic and statistical significance of the risk-adjusted returns to a large set of asset pricing anomalies.

Keywords: Beta anomaly, cross-sectional stock returns

JEL Classification: G12

Suggested Citation

Liu, Ruomeng, Asset Pricing Anomalies and the Low-Risk Puzzle (June 14, 2019). Available at SSRN: or

Ruomeng Liu (Contact Author)

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

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