Research On The Existence Of Low-Beta Anomaly In Chinese Stock Market And The Influencing Factors Of Betting Against Beta

The asset pricing model(CAPM)is the benchmark of modern financial theory.Based on Mean-Variance Theory and Efficient Market Theory,Treynor(1961,1962),Sharpe(1964),Lintner(1965)and Mossin(1966)developed the Capital Asset Pricing Model(CAPM)Respectively.They all believe that the expected return of an asset is positively correlated with the risk it contains,however,we know that CAPM has many assumptions,the positive correlation between risk and return has been questioned by many people.Through series of empirical tests,some scholars have found that Beta is not always positively correlated with return,sometimes show "low Beta anomaly",where low-Beta stocks have outperformed high-Beta stocks in the future,this anomaly has carried on the challenge to the traditional CAPM theory.In order to verify the effectiveness of CAPM,this paper examines the existence of"Low-Beta anomaly" in the Chinese stock market and finds that there is indeed a Low-Beta anomaly.After controlling the five factors,the low Beta anomaly still alive.On the basis of the existence of this anomaly,we construct a market-neutral portfolio-betting against Beta factor(BAB factor),this factor long low-Beta securities and that short high-Beta securities.We test the performance of BAB factor and find that no matter under CAPM model,three-factor,four-factor or five-factor model,BAB factor can always achieve significantly positive returns.Then we test the main factors that influence the BAB factor,these factors include leverage limits,sentiment,disagreement(Disg),lottery effect(MAX).Through a series of empirical tests,we found that sentiment(SENT)and lottery effect(MAX)had the most influence on the performance of the BAB factor and MAX and Disg was not significant,this result indicate that behavior factors have more effect on BAB factor.Finally,we examine the sustainability of Beta arbitrage strategy.Controlling different formation periods and holding periods,it was found that the maximum arbitrage return was obtained in the formation period of 9 months and the holding period of 6 months.After controlling for three factors and five factors,the yield of this strategy was greater.Therefore,there is a Low-Beta anomaly in Chinese stock market,which is more influenced by behavioral factors,and the anomaly is persistent over a period of time.Investors can use the BAB factor to obtain excess returns,at the same time,according to the relevant conclusions of this paper,investors can avoid making blind decisions and causing property losses.