Is the Beta Anomaly Real? A Correction in Existing Theories of Cost of Capital and Asset Pricing

Vinod Kumar

Journal of Emerging Market Finance, 2023, vol. 22, issue 2, 135-163

Abstract: Researchers argue about the beta anomaly and related anomalies in the capital market based on existing theories of asset pricing. This article shows that the observed beta anomaly is added due to the mathematical errors, inconsistencies, and limitations in existing theories. We propose a general theory for central concepts in asset pricing, including beta and cost of capital, that holds for growth, taxes, and risky debt. Our theory addresses observed beta-related anomalies and other phenomena, and provides a clearer taxonomy for ongoing research and a step toward resolving several issues. The findings are highly significant for researchers and firms. JEL Codes: G32, G12, G11, G35

Keywords: Beta anomaly; capital asset pricing model; capital structure; cost of capital; risky debt; tax shield (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:sae:emffin:v:22:y:2023:i:2:p:135-163

DOI: 10.1177/09726527231160863

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