A Behavioral Economics Exploration into the "Volatility Anomaly" ``

Contrary to a commonsense view in traditional finance theories to the effect that expected returns on investments in high-risk securities are higher than those in low-risk investments, in the actual stock market, there are negative correlations, respectively, between the beta value of individual securities measured beforehand and the actual returns realized later, and between the idiosyncratic volatility measured beforehand and the actual returns realized later. Here we, based upon the empirical studies of investor behaviors in the Japanese stock market, present the fact that, behind the gbeta anomaly, h there is a preference for high-beta securities by typical institutional investors whose mandate is to beat a benchmark, and also that, behind the gidiosyncratic volatility anomaly, h there is a preference for positively skewed securities by individual investors, especially those engaged in margin trading, who overweight low tail probabilities assigned to the state of the world in which they make a lot of money by investing in the positively skewed stock, which could be called a ggambling preference. h