Asset Pricing Anomalies and the Low-Risk Puzzle

47 Pages Posted: 1 Oct 2018 Last revised: 3 Dec 2018

See all articles by Ruomeng Liu

Ruomeng Liu

University of Nebraska at Lincoln

Date Written: July 31, 2018

Abstract

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 (July 31, 2018). Available at SSRN: https://ssrn.com/abstract=3258015 or http://dx.doi.org/10.2139/ssrn.3258015

Ruomeng Liu (Contact Author)

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

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