The Risk-Return Disconnect: A Study on Beta Anomaly in Indian Stock Market
Abstract
Low-beta stocks tend to outperform high-beta stocks. The association of beta and return has been reported to be reverse in many studies. This study assesses whether that anomaly is found in Indian equity market. Further, it will also assess the direction and strength of beta and return relationship across market-capitalisation segments. This study employs a quantitative profile with a longitudinal design. It uses companies listed in the National Stock Exchange NIFTY 500 index for the period from 1 April 2021 to 31 March 2026. The planned stratified sample has companies divided as follows: four large-cap, six mid-cap and ten small-cap stocks. However, the reported small-cap statistical comparison covers seven stocks only, due to the inconsistency in availability of daily data and temporal alignment among the selected stocks. The secondary historical stock-price data are looked at with estimated market beta, descriptive statistics, Pearson and Spearman correlations, beta-sorted portfolios and tests with HAC standard errors. Results show a positive but not statistically significant beta–return correlation in the large-cap and small-cap samples. Although the mid-cap sample is strongly positively correlated, its specific permutation test does not achieve the five percent significance level. The high-beta portfolios tend to outperform the low-beta portfolios in terms of returns on average in the reported large-cap and mid-cap comparisons. However, the return spreads are statistically insignificant in these comparisons. On the whole, the evidence does not document a low-beta anomaly present across the segments. The study indicates that risk pricing is heterogeneous and reveals that beta is of limited use for investors. Generalisation is constrained and future analysis should be consistent and broad as the time periods for observations are unequal. The dividend adjustments are incomplete and the samples used in the analysis are small.
Keywords: Beta Anomaly, Systematic Risk, Risk–Return Relationship, NIFTY 500, Market Capitalisation.
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