We thank the Issue Editor, Sheridan Titman, Chu Zhang (discussant and referee), Sudipto Dasgupta (the editor) and other participants at the International Review of Finance Conference on Japanese Financial Markets in Tokyo and the 2013 Nippon Finance Association Conference for their helpful comments. Iwasawa acknowledges financial support from Japan Society of Promotion of Science (JSPS KAKENHI Grant Number 25380412).
The Beta Anomaly in the Japanese Equity Market and Investor Behavior†
Article first published online: 20 MAR 2014
© 2014 International Review of Finance Ltd. 2014
International Review of Finance
Special Issue: Japanese Financial Markets: Corporate Finance, Institutions, and Investments
Volume 14, Issue 1, pages 53–73, March 2014
How to Cite
Iwasawa, S. and Uchiyama, T. (2014), The Beta Anomaly in the Japanese Equity Market and Investor Behavior. International Review of Finance, 14: 53–73. doi: 10.1111/irfi.12023
- Issue published online: 20 MAR 2014
- Article first published online: 20 MAR 2014
- Japan Society of Promotion of Science. Grant Number: 25380412
It is well known that high-beta stocks are associated with a low alpha relative to the capital asset pricing model and to the Fama–French three-factor model. We show that the beta anomaly in the Japanese market is attributable to foreign institutional investors, not domestic individuals. Foreigners overweight high-beta stocks; the anomaly weakens or reverses when their investment increases and strengthens when it decreases; and they invest more in high-beta than low-beta stocks when increasing investment and sell high-beta more than low-beta stocks when reducing it. We do not find analogous results for individual investors. Our results suggest that the beta anomaly reflects a preference for high-beta securities by institutional investors aiming to beat a benchmark.