Open AccessChasing returns with high-beta stocks: evidence from tax-privileged mutual funds in Thailand
Author(s) -
Roongkiat Ratanabanchuen,
Kanis Saengchote
Publication year - 2021
Publication title -
economics and business letters
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.197
H-Index - 4
ISSN - 2254-4380
DOI - 10.17811/ebl.10.1.2021.37-44
Subject(s) - monetary economics , equity (law) , mutual fund , systematic risk , economics , beta (programming language) , capital asset pricing model , business , passive management , institutional investor , global assets under management , financial economics , finance , fund of funds , market liquidity , corporate governance , political science , computer science , law , programming language
One proposed explanation for the low-beta anomaly – a puzzling finding that stocks with low systematic risk tend to earn higher returns than the CAPM predicts and vice versa – is that mutual funds drive up demand for high-beta stocks, leading to systematic mispricing. We find evidence that Thai equity mutual funds tend to alter their risk exposure in response to fund flows, but only for incentivized funds where investors receive immediate tax benefits. We argue that the benefits change the way investors make their decisions, raising an issue of how public policies may have unintended consequences in capital markets.