Abstract
ABSTRACT The beta anomaly indicates that high-beta stocks earn low future returns. We confirm the existence of the beta anomaly in the Chinese A-share stock market and propose that heterogeneous beliefs and arbitrage limits play important roles in explaining the beta anomaly. We provide a new proxy for aggregate disagreement based on analysts’ earnings forecasts and find that the beta anomaly does not exist in stocks with low arbitrage limits and periods with low aggregate disagreement. Furthermore, a higher aggregate disagreement period leads to a more concave Security Market Line.
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