Is There a Low-Beta Anomaly in the Nordic Stock Market? An Empirical Analysis of Risk and Return from 2000-2023
Abstract
In this master thesis we analyse the relationship between risk and return in the Nordic stock market. Established financial theory states that there is a linear relationship between risk and return and that investors will be compensated for taking on additional risk. However, research such as Black, Jensen and Scholes (1972) found that the relation between expected return and beta is weaker than anticipated. Positive abnormal returns has been found for portfolios consisting of low-beta stocks, this is known as the beta anomaly. We investigate if the low-beta anomaly was present from 2000 through 2023, in the Nordic stock market. We construct two long portfolios, one high-beta and one low-beta portfolio for each country. The anomaly was most present in Norway, and found in 14 out of 19 years. The cumulative return for the low-beta portfolio outperformed the high-beta portfolio in Norway, Sweden, and Denmark over the long run from 2005-2023. For Finland, the cumulative return for the high-beta portfolio outperformed the low-beta portfolio. The results suggest that the low-beta anomaly was present in Norway, Sweden, Denmark, and Finland.