Does betting against beta strategy work in major Asian Markets?

Sanjay Sehgal, Sarika Rakhyani and Florent Deisting

Pacific-Basin Finance Journal, 2022, vol. 75, issue C

Abstract: This study examines the betting against beta (BAB) anomaly and its drivers for five major Asian markets, using data from January 1999 to January 2020. We find positive raw returns-based BAB premiums for India, China, and South Korea, while they are negative in Japan and Indonesia. Cross-sectional differences in BAB premiums seem to be positively associated with the level of information uncertainty and financial market development. Decomposition of the BAB phenomenon shows that BAB premiums are driven by betting against correlation (BAC) premiums in India while betting against volatility (BAV) premiums drive it in China and S.Korea. Funding liquidity risk and margin constraints drive positive BAC in India and Indonesia. Positive BAV in China is driven by MAX (lottery behavior), while idiosyncratic volatility (IVOL) and MAX together drive them in S.Korea. Negative BAB in Japan and Indonesia is mainly due to negative BAV premiums caused by MAX in Japan and both IVOL and MAX in Indonesia. CAPM-based risk-adjusted BAB premiums are not significant for S.Korea, Japan, and Indonesia, while in India and China, they are significant but get explained by the profitability factor. We conclude that the BAB strategy is not universally applicable, and its drivers vary across sample markets.

Keywords: Beta anomaly; Betting against beta; Asian markets; Betting against correlation; Betting against volatility; IVOL; Lottery behavior; Profitability (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0927538X22001196
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:75:y:2022:i:c:s0927538x22001196

DOI: 10.1016/j.pacfin.2022.101824

Access Statistics for this article

Pacific-Basin Finance Journal is currently edited by K. Chan and S. Ghon Rhee

More articles in Pacific-Basin Finance Journal from Elsevier
Bibliographic data for series maintained by Catherine Liu ().