IDEAS home Printed from https://ideas.repec.org/p/iim/iimawp/12900.html
   My bibliography  Save this paper

Betting Against Beta in the Indian Market

Author

Listed:
  • Agarwalla, Sobhesh Kumar
  • Jacob, Joshy
  • Varma, Jayanth R.
  • Vasudevan, Ellapulli

Abstract

Recent empirical evidence from diff erent 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 fi nd that a similar BAB factor earns signi ficant positive returns in India. The returns on the BAB factor dominate the returns on the size, value and momentum factors. We also nd that stocks with higher volatility earn relatively lower returns. These findings indicate overweighting of riskier assets by leverage constrained investors in the Indian market.

Suggested Citation

  • Agarwalla, Sobhesh Kumar & Jacob, Joshy & Varma, Jayanth R. & Vasudevan, Ellapulli, 2014. "Betting Against Beta in the Indian Market," IIMA Working Papers WP2014-07-01, Indian Institute of Management Ahmedabad, Research and Publication Department.
    • Handle: RePEc:iim:iimawp:12900
    as

    Download full text from publisher

    File URL: https://www.iima.ac.in/sites/default/files/rnpfiles/5848695332014-07-01.pdf
    File Function: English Version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Agarwalla, Sobhesh Kumar & Jacob, Joshy & Varma, Jayanth R., 2013. "Four Factor Model in Indian Equities Market," IIMA Working Papers WP2013-09-05, Indian Institute of Management Ahmedabad, Research and Publication Department.
    2. Ang, Andrew & Hodrick, Robert J. & Xing, Yuhang & Zhang, Xiaoyan, 2009. "High idiosyncratic volatility and low returns: International and further U.S. evidence," Journal of Financial Economics, Elsevier, vol. 91(1), pages 1-23, January.
    3. Frazzini, Andrea & Pedersen, Lasse Heje, 2014. "Betting against beta," Journal of Financial Economics, Elsevier, vol. 111(1), pages 1-25.
    4. Andrew Ang & Robert J. Hodrick & Yuhang Xing & Xiaoyan Zhang, 2006. "The Cross‐Section of Volatility and Expected Returns," Journal of Finance, American Finance Association, vol. 61(1), pages 259-299, February.
    5. Jegadeesh, Narasimhan & Titman, Sheridan, 1993. "Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency," Journal of Finance, American Finance Association, vol. 48(1), pages 65-91, March.
    6. Fama, Eugene F & French, Kenneth R, 1992. "The Cross-Section of Expected Stock Returns," Journal of Finance, American Finance Association, vol. 47(2), pages 427-465, June.
    7. Vasicek, Oldrich A, 1973. "A Note on Using Cross-Sectional Information in Bayesian Estimation of Security Betas," Journal of Finance, American Finance Association, vol. 28(5), pages 1233-1239, December.
    8. Black, Fischer, 1972. "Capital Market Equilibrium with Restricted Borrowing," The Journal of Business, University of Chicago Press, vol. 45(3), pages 444-455, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Sudipta Das, 2019. "Asset Pricing Test Using Alternative Sets of Portfolios: Evidence from India," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 26(3), pages 339-354, September.
    2. Sehgal, Sanjay & Rakhyani, Sarika & Deisting, Florent, 2022. "Does betting against beta strategy work in major Asian Markets?," Pacific-Basin Finance Journal, Elsevier, vol. 75(C).
    3. Sarika Rakhyani, 2021. "An empirical examination of beta anomaly in India," DECISION: Official Journal of the Indian Institute of Management Calcutta, Springer;Indian Institute of Management Calcutta, vol. 48(2), pages 191-206, June.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Asness, Cliff & Frazzini, Andrea & Gormsen, Niels Joachim & Pedersen, Lasse Heje, 2020. "Betting against correlation: Testing theories of the low-risk effect," Journal of Financial Economics, Elsevier, vol. 135(3), pages 629-652.
    2. Sebastien Valeyre & Sofiane Aboura & Denis Grebenkov, 2019. "The Reactive Beta Model," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 42(1), pages 71-113, March.
    3. De Giorgi, Enrico G. & Post, Thierry & Yalçın, Atakan, 2019. "A concave security market line," Journal of Banking & Finance, Elsevier, vol. 106(C), pages 65-81.
    4. Han, Xing & Li, Kai & Li, Youwei, 2020. "Investor overconfidence and the security market line: New evidence from China," Journal of Economic Dynamics and Control, Elsevier, vol. 117(C).
    5. Malamud, Semyon & Vilkov, Grigory, 2018. "Non-myopic betas," Journal of Financial Economics, Elsevier, vol. 129(2), pages 357-381.
    6. Asness, Clifford & Frazzini, Andrea & Israel, Ronen & Moskowitz, Tobias J. & Pedersen, Lasse H., 2018. "Size matters, if you control your junk," Journal of Financial Economics, Elsevier, vol. 129(3), pages 479-509.
    7. Constantinos Antoniou & John A. Doukas & Avanidhar Subrahmanyam, 2016. "Investor Sentiment, Beta, and the Cost of Equity Capital," Management Science, INFORMS, vol. 62(2), pages 347-367, February.
    8. Turan G. Bali & Robert F. Engle & Yi Tang, 2017. "Dynamic Conditional Beta Is Alive and Well in the Cross Section of Daily Stock Returns," Management Science, INFORMS, vol. 63(11), pages 3760-3779, November.
    9. Lee, Kuan-Hui & Yang, Cheol-Won, 2022. "The world price of tail risk," Pacific-Basin Finance Journal, Elsevier, vol. 71(C).
    10. Adam Zaremba & Jacob Koby Shemer, 2018. "Price-Based Investment Strategies," Springer Books, Springer, number 978-3-319-91530-2, December.
    11. Annaert, Jan & Mensah, Lord, 2014. "Cross-sectional predictability of stock returns, evidence from the 19th century Brussels Stock Exchange (1873–1914)," Explorations in Economic History, Elsevier, vol. 52(C), pages 22-43.
    12. Flögel, Volker & Schlag, Christian & Zunft, Claudia, 2022. "Momentum-Managed Equity Factors," Journal of Banking & Finance, Elsevier, vol. 137(C).
    13. Lou, Dong & Polk, Christopher & Skouras, Spyros, 2019. "A tug of war: Overnight versus intraday expected returns," Journal of Financial Economics, Elsevier, vol. 134(1), pages 192-213.
    14. Poon, Percy & Yao, Tong & Zhang, Andrew (Jianzhong), 2022. "The alphas of beta and idiosyncratic volatility," Journal of Financial Markets, Elsevier, vol. 61(C).
    15. Wang, Huijun & Yan, Jinghua & Yu, Jianfeng, 2017. "Reference-dependent preferences and the risk–return trade-off," Journal of Financial Economics, Elsevier, vol. 123(2), pages 395-414.
    16. Amit Goyal, 2012. "Empirical cross-sectional asset pricing: a survey," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 26(1), pages 3-38, March.
    17. Andy Fodor & Kevin Krieger & Nathan Mauck & Greg Stevenson, 2013. "Predicting Extreme Returns And Portfolio Management Implications," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 36(4), pages 471-492, December.
    18. Flögel, Volker & Schlag, Christian & Zunft, Claudia, 2021. "Momentum-managed equity factors," SAFE Working Paper Series 317, Leibniz Institute for Financial Research SAFE.
    19. Malcolm Baker & Mathias F. Hoeyer & Jeffrey Wurgler, 2016. "The Risk Anomaly Tradeoff of Leverage," NBER Working Papers 22116, National Bureau of Economic Research, Inc.
    20. Bodilsen, Simon & Eriksen, Jonas N. & Grønborg, Niels S., 2021. "Asset pricing and FOMC press conferences," Journal of Banking & Finance, Elsevier, vol. 128(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:iim:iimawp:12900. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/eciimin.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.