Beta Anomaly And Quality Factor

The beta anomaly is one of the most enduring anomalies in the field of asset pricing research.It refers to the phenomenon that stocks with high beta have negative alpha values and stocks with low beta have positive alpha values.In other words,the rate of return of a high-beta investment portfolio is too low relative to the rate of return of a low-beta investment portfolio.Some previous studies believe that beta itself is the stock-related feature that drives the anomaly.Immature investors and fund managers who try to beat the benchmark during the optimistic period will increase investment in high-beta securities,leading to overvalued high-beta securities.Investors who are subject to financing constraints or leverage restrictions have excessively increased high-beta securities in their investment portfolios in order to increase the yield,thereby raising the price of high-beta securities and leading to a decline in the yield of high-beta securities.Researchers who oppose beta as the related stock characteristics that drive the anomaly explain the beta anomaly from the investors' demand for lottery stocks and the idiosyncratic volatility,and believe that beta is not the direct stock feature that drives the anomaly.However,MAX,as a proxy variable for lottery stocks,is essentially just a volatility rate,and cannot be used as a stock feature that drives beta anomaly.Therefore,this article attempts to explain the beta anomaly with a new perspective,that is,to use the quality factor to explain the beta anomaly.This article uses bivariate sorting grouping and regression analysis methods to draw the following conclusions.There is a significant beta anomaly and quality effect in the Chinese stock market.After controlling the beta anomaly,the quality factor still has excess returns.When the quality factor was controlled,the beta anomaly disappeared,proving that the quality factor can explain the beta anomaly.The theoretical significance of this article is to try to use the quality factor to explain the beta anomaly,enrich the theories about the explanation of the reason behind the beta anomaly,and provide a new perspective to explain the beta anomaly.The practical significance is to construct a quantitative investment strategy through the quality factor,and the performance of this strategy outperforms the index of the same period in most of the time.The quantitative investment strategy constructed in this article enriches the investment toolkit of the domestic quantitative fund team,helps to improve investors' excess returns,and guides investors to invest in high-quality company stocks,reducing unnecessary losses,and improving the stock market's pricing efficiency.