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The Evolving Financial Landscape in Emerging Markets and Developing Economies Read chapter Read first chapter

2020 | OriginalPaper | Chapter

3. Betting Against Beta in the Indian Market

Authors : Sobhesh Kumar Agarwalla, Joshy Jacob, Jayanth R. Varma, Ellapulli Vasudevan

Published in: The Financial Landscape of Emerging Economies

Publisher: Springer International Publishing

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Abstract

Recent empirical evidence from different markets suggests that the security market line is flatter than posited by CAPM. This flatness implies that a portfolio long in low-beta assets and short in high-beta assets would earn positive returns. Frazzini and Pedersen (2014) conceptualize a BAB factor that tracks such a portfolio. We find that a similar BAB factor earns significant positive returns in India. The returns on the BAB factor dominate the returns on the size, value, and momentum factors. We also find that stocks with higher volatility earn relatively lower returns. These findings indicate overweighting of riskier assets by leverage constrained investors in the Indian market.

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previous chapter Nexus Between Financial Cycle and Business Cycle in India
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Appendix
Available only for authorised users
Footnotes
1
The other reason for the flatness suggested by Black (1972) is the use of inappropriate market proxy.
 
3
It is an index maintained by the Bombay Stock Exchange.
 
4
The weighted betas are not strictly equal to the market beta of one as the market proxy, Sensex, does not include all the traded stocks.
 
Literature
Agarwalla, S. K., Jacob, J., & Varma, J. R. (2013). Four factor model in Indian equities market. Working Paper W. P. No. 2013-09-05, Indian Institute of Management, Ahmedabad.
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Ansari, V. A. (2000). Capital asset pricing model: Should we stop using it? Vikalpa, 25(1), 55–64.CrossRef
Baker, M., Bradley, B., & Wurgler, J. (2011). Benchmarks as limits to arbitrage: Understanding the low-volatility anomaly. Financial Analysts Journal, 67(1).
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Black, F. (1993). Beta and return. Streetwise: The Best of The Journal of Portfolio Management, 74.
Fama, E. F., & French, K. R. (1992). The cross-section of expected stock returns. The Journal of Finance, 47(2), 427–465.CrossRef
Frazzini, A., & Pedersen, L. H. (2014). Betting against beta. Journal of Financial Economics, 111(1), 1–25.CrossRef
Jegadeesh, N., & Titman, S. (1993). Returns to buying winners and selling losers: Implications for stock market efficiency. The Journal of Finance, 48(1), 65–91.CrossRef
Vasicek, O. A. (1973). A note on using cross-sectional information in bayesian estimation of security betas. The Journal of Finance, 28(5), 1233–1239.CrossRef
Metadata
Title
Betting Against Beta in the Indian Market
Authors
Sobhesh Kumar Agarwalla
Joshy Jacob
Jayanth R. Varma
Ellapulli Vasudevan
Copyright Year
2020
Book
The Financial Landscape of Emerging Economies

Print ISBN: 978-3-030-60007-5

Electronic ISBN: 978-3-030-60008-2

Copyright Year: 2020

DOI
https://doi.org/10.1007/978-3-030-60008-2_3