Chasing Returns with High-Beta Stocks

Roongkiat Ratanabanchuen and Kanis Saengchote

No 96, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research

Abstract: One of the proposed explanations for the low-beta anomaly – a prevalent yet puzzling empirical finding that stocks with low systematic risk tend to earn higher returns than the Capital Asset Pricing Model (CAPM) predicts and vice versa – is that leveraged-constrained and index-benchmarked mutual funds drive up demand for high-beta stocks, leading to systematic mispricing. We find evidence that Thai mutual fund managers, on average, favor high-beta stocks and tend to alter their portfolio composition of high-beta stocks in response to fund flows. In addition, funds that hold high-beta stocks perform poorly compared to their peers: a one standard deviation increase in high-beta stock holdings is associated with a 1.3 percentage point decrease in future relative returns.

Keywords: High-beta stocks; Mutual fund returns; Low-beta anomaly (search for similar items in EconPapers)
JEL-codes: G11 G23 (search for similar items in EconPapers)
Pages: 10 pages
Date: 2018-10
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