The Effect of Investor Sentiment on Betting Against Beta: A Structural Equations Modeling Approach Towards Beta Anomaly

Hooman Abdollahi, Seyed Babak Ebrahimi and Hamed Tayebi
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Hooman Abdollahi: Department of Industrial Engineering, Karaj Branch, Islamic Azad University, Karaj, Iran,
Seyed Babak Ebrahimi: Department of Industrial Engineering, K.N. Toosi University of Technology, Tehran, Iran
Hamed Tayebi: Department of Industrial Engineering, Karaj Branch, Islamic Azad University, Karaj, Iran

International Journal of Economics and Financial Issues, 2017, vol. 7, issue 1, 201-206

Abstract: Beta anomaly is one of the greatest anomalies in finance literature as capital asset pricing model (CAPM) conveys a positive relationship between the beta of a stock and future returns; however, empirical studies do not document this proposition. Branded as betting against beta (BAB), this conundrum is known as a controversial subject. Drawing on literature the authors propose new multi-factor models to develop our understanding of BAB using investor sentiment as well as structural equation modeling methodology to gauge the models in the presence of the top-down approach. Results indicate that investor sentiment provides a good explanation of the BAB. Limitation and future research directions are presented at the end of paper.

Keywords: Behavioral Finance; Investor Sentiment; Betting Against Beta Factor (search for similar items in EconPapers)
JEL-codes: G02 G10 (search for similar items in EconPapers)
Date: 2017
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