Abstract
Relying on 116 million firm days from 50 stock markets and guided by behavioral theories, I provide evidence for the conjecture that the puzzling beta anomaly is the result of mispricing partly caused by expectational errors and biased beliefs. First, long/short return spreads across the globe are several times larger surrounding a broad range of firm-specific news announcements. Second, the anomaly is largely explained by a composite local mispricing factor. Third, the anomaly is positively related to lagged local market gains. Fourth, local consumer confidence positively predicts alphas. Fifth, the anomaly is concentrated in heavily traded stocks.
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