The conditional dynamics of betting-against-beta : Evidence from aggregate margin debt

Sammanfattning

This thesis investigates whether the betting-against-beta factor is an unconditional asset pricing anomaly or a conditional phenomenon fueled by the macroeconomic leverage cycle. In accordance with recent literature including Barroso et al. (2025), the BAB premium peaks following periods of calm markets. This challenges the traditional perception of the immediate binding of funding constraints during market stress. To combat this paradox, aggregate margin debt is introduced as an equity-specific proxy for speculative demand and as a comparison to the commonly used TED spread. By using aggregate margin debt data derived from 1997 to 2025, regressions and state-dependent regime analysis were performed. The empirical findings of this thesis reveal a steeper security market line with a higher intercept than what traditional research and the CAPM formula claims. Nevertheless, the low-beta anomaly persists due to a distinct divergence of risk-adjusted returns across the beta decile portfolios. The results underpin margin debts’ role as a state variable capturing the continuous build-up of speculative intensity and market mispricing following calm markets, while the VIX serves as a preferred indicator for sudden crashes. In conclusion, the findings highlight the low-beta anomaly as highly state-dependent, thus showing the danger of static exposure to the BAB factor.