A Lottery-Demand-Based Explanation of the Beta Anomaly

2017 ◽  
Vol 52 (6) ◽  
pp. 2369-2397 ◽  
Author(s):  
Turan G. Bali ◽  
Stephen J. Brown ◽  
Scott Murray ◽  
Yi Tang
Keyword(s):  
Asset Pricing ◽  
Abnormal Returns ◽  
Institutional Ownership ◽  
Price Impact ◽  
Empirical Asset Pricing ◽  
Demand Factor ◽  
Pricing Research ◽  
Persistent Anomalies ◽  
Low Levels ◽  
High Beta

The low (high) abnormal returns of stocks with high (low) beta, which we refer to as the beta anomaly, is one of the most persistent anomalies in empirical asset pricing research. This article demonstrates that investors’ demand for lottery-like stocks is an important driver of the beta anomaly. The beta anomaly is no longer detected when beta-sorted portfolios are neutralized to lottery demand, regression specifications control for lottery demand, or factor models include a lottery demand factor. The beta anomaly is concentrated in stocks with low levels of institutional ownership and it exists only when the price impact of lottery demand is concentrated in high-beta stocks.

Impact of ETF Listing on the Returns Generated by Underlying Stocks: Indian Evidence

2021 ◽  
pp. 0258042X2199101
Author(s):  
Prabhdeep Kaur ◽  
Jaspal Singh
Keyword(s):  
Event Study ◽  
Abnormal Returns ◽  
Price Impact ◽  
Exchange Traded Funds ◽  
Study Analysis ◽  
Jel Codes ◽  
Securities Transaction Tax ◽  
Underlying Stocks ◽  
Transaction Tax ◽  
The Impact

The advent of exchange traded funds (ETFs) has rendered index trading much affordable compared to their futures counterparts. The present study attempts to examine the impact of ETF listing on the price of the constituent securities of the index that it aims to track. The sample comprises of all the equity ETFs listed in India from 1 January 2002 to 31 March 2019. Event study analysis has been used to examine whether listing of ETFs bore any price impact on the constituent stocks of ETFs. To account for robustness, both parametric and non-parametric tests have been employed. The estimates obtained from event study analysis revealed that the constituent stocks generated insignificant returns for the period extending from January 2002 to March 2009 and April 2009 to March 2013 but positive and significant cumulative average abnormal returns (CAARs) post ETF listing for the period ranging from April 2013 to March 2019, thus providing evidence in support of positive price impact. The permission granted to pension funds, insurers and Employees’ Provident Fund Organisation (EPFO) to invest their funds in ETFs as well as reduction in Securities Transaction Tax (STT) account for the observed price differential. An analysis of the factors accounting for the variation in valuation effects ascertained that the stocks that were traded thinly prior to ETF listing and those forming part of ETFs with larger asset base experienced positive price impact following ETF listing. JEL Codes: G11, G14

Firm location and systematic risk: the real estate channel

2020 ◽  
Vol 19 (3) ◽  
pp. 387-409
Author(s):  
Xiang Gao ◽  
John Topuz
Keyword(s):  
Asset Pricing ◽  
Real Estate ◽  
Abnormal Returns ◽  
Systematic Risk ◽  
Local Economy ◽  
Firm Risk ◽  
Firm Level ◽  
Content Type ◽  
Land Availability ◽  
Real Estate Prices

Purpose This paper aims to investigate whether the cyclicality of local real estate prices affects the systematic risk of local firms using a geography-based measure of land availability as a quasi-exogenous proxy for real estate price cyclicality. Design/methodology/approach This paper uses the geography-based land availability measure as a proxy for the procyclicality of real estate prices and the location of a firm’s headquarters as a proxy for the location of its real estate assets. Four-factor asset pricing model (market, size, value and momentum factors) is used to examine whether firms headquartered in more land-constrained metropolitan statistical areas have higher systematic risks. Findings The results show that real estate prices are more procyclical in areas with lower land availability and firms headquartered in these areas have higher systematic risk. This effect is more pronounced for firms with higher real estate holdings as a ratio of their tangible assets. Moreover, there are no abnormal returns to trading strategies based on land availability, consistent with stock market betas reflecting this local real estate factor. Research limitations/implications This paper contributes to the literature on local asset pricing factors, the collateral role of firms’ real estate holdings and the co-movement of security prices of geographically close firms. Practical implications This paper has important managerial implications by showing that, when firms decide on the location of their buildings (e.g. headquarters building, manufacturing plant and retail outlet), the location’s influence on systematic risk should be part of the decision-making process. Originality/value This paper is among the first to use a geography-based measure of land availability to study whether the procyclicality of local real estate prices influences firm risk independent of the procyclicality of the local economy. Thus, both the portfolio formed and firm-level analyses provide a more direct evidence of the positive relation between the procyclicality of local real estate prices and firm risk.

scholarly journals IMPLICIT TRANSACTION COSTS AND THE FUNDAMENTAL THEOREMS OF ASSET PRICING

2017 ◽  
Vol 20 (04) ◽  
pp. 1750024 ◽  
Author(s):  
ERINDI ALLAJ
Keyword(s):  
Asset Pricing ◽  
Transaction Costs ◽  
Price Impact ◽  
Quadratic Variation ◽  
Trading Strategies ◽  
Arbitrage Pricing Theory ◽  
Bid Ask Spread ◽  
Bid Price ◽  
Equivalent Probability Measure ◽  
Implicit Transaction Costs

This paper studies arbitrage pricing theory in financial markets with implicit transaction costs. We extend the existing theory to include the more realistic possibility that the price at which the investors trade is dependent on the traded volume. The investors in the market always buy at the ask and sell at the bid price. Implicit transaction costs are composed of two terms, one is able to capture the bid-ask spread, and the second the price impact. Moreover, a new definition of a self-financing portfolio is obtained. The self-financing condition suggests that continuous trading is possible, but is restricted to predictable trading strategies having cádlág (right-continuous with left limits) and cáglád (left-continuous with right limits) paths of bounded quadratic variation and of finitely many jumps. That is, cádlág and cáglád predictable trading strategies of infinite variation, with finitely many jumps and of finite quadratic variation are allowed in our setting. Restricting ourselves to cáglád predictable trading strategies, we show that the existence of an equivalent probability measure is equivalent to the absence of arbitrage opportunities, so that the first fundamental theorem of asset pricing (FFTAP) holds. It is also shown that the use of continuous and bounded variation trading strategies can improve the efficiency of hedging in a market with implicit transaction costs. To better understand how to apply the theory proposed we provide an example of an implicit transaction cost economy that is linear and nonlinear in the order size.

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