Beta herding through overconfidence: A behavioral explanation of the low-beta anomaly - Archive ouverte HAL
Article Dans Une Revue Journal of International Money and Finance Année : 2021

Beta herding through overconfidence: A behavioral explanation of the low-beta anomaly

Soosung Hwang
  • Fonction : Auteur
Mark Salmon
  • Fonction : Auteur

Résumé

We investigate asset returns using the concept of beta herding, which measures cross-sectional variations in betas due to changes in investors’ confidence about their market outlook. Overconfidence causes beta herding (compression of betas towards the market beta), while under-confidence leads to adverse beta herding (dispersion of betas from the market beta). We show that the low-beta anomaly can be explained by a return reversal following adverse beta herding, as high beta stocks underperform low beta stocks exclusively following periods of adverse beta herding. This result is robust to investors’ preferences for lottery-like assets, sentiment, and return reversals, and beta herding leads time variation in betas.
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hal-03275894 , version 1 (15-12-2022)

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Soosung Hwang, Alexandre Rubesam, Mark Salmon. Beta herding through overconfidence: A behavioral explanation of the low-beta anomaly. Journal of International Money and Finance, 2021, 111, pp.102318. ⟨10.1016/j.jimonfin.2020.102318⟩. ⟨hal-03275894⟩
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