Market neutrality and beta crashes: evidence from the Thai equity market

Abstract

This study investigates the Betting-Against-Beta (BAB) strategy in the Thai equity market, focusing on its return premium, risk profile, and the role of volatility management. Specifically, it examines whether the low-beta anomaly exists in Thailand, whether BAB’s market exposure varies across market conditions, and whether volatility management can improve the strategy’s risk-adjusted and factor-adjusted performance.Using common stocks listed on the main board of the Stock Exchange of Thailand (SET) from January 2002 to December 2025, this study constructs monthly BAB portfolios following Frazzini and Pedersen (2014). The empirical results provide evidence of the low-beta anomaly, as the BAB strategy generates a positive and statistically significant abnormal return, with this evidence persisting across both large-cap and small-cap subsamples. However, the strategy also experiences large losses during several periods of strong market increases. The state-dependent analysis shows that BAB’s market exposure becomes substantially more negative when the market performs strongly, indicating negative market timing. In contrast, the optionality analysis does not provide strong evidence that the Thai BAB strategy behaves like a short-call-like option on the market. Finally, volatility management improves both risk-adjusted and factor-adjusted performance. Overall, the findings suggest that the BAB strategy delivers a significant return premium in Thailand, but this premium is accompanied by downside risk related to time-varying market exposure.