Behavioral Roots in Studying Betting Against Beta: A Review

Empirical studies indicate that low beta stocks provide better and high beta stocks produce worse than expected returns. This beta anomaly is recognized as Betting Against Beta (BAB) in finance literature. Many studies have been conducted to find explanations for this phenomenon, but this paper posits a new approach for studying this anomaly. Drawing on literature, the authors indicate that BAB phenomenon can be explained by behavioral roots more effectively. This paper shows that high beta stocks have the characteristics that attract investor s sentiment, these stocks difficult-to-arbitrage and difficult-to-value stocks because they are small, unprofitable, volatile, growth, and perhaps young and non-dividend-paying stocks.