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Are cash-flow betas really bad? Evidence from the Greater Chinese stock markets

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  • Wu, Ming
  • Ohk, Kiyool
  • Ko, Kwangsoo

Abstract

This study evaluates the relative importance of cash-flow news and discount-rate news using the log-linear model for the Greater Chinese stock markets (i.e., China, Hong Kong, and Taiwan). Although they belong to the same cultural region, these countries have different capital market regulations and practices. In this context, we find that only the discount-rate beta is priced in Hong Kong; thus, the discount-rate beta is labeled as a ‘bad beta’ in Hong Kong. However, the cash-flow beta is ‘bad’ in China and both betas are ‘bad’ in Taiwan. These findings are consistent with each market's ownership structure, dividend policy, and tax system. However, as in the United States, risk premiums are significantly higher in down markets than in up markets.

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  • Wu, Ming & Ohk, Kiyool & Ko, Kwangsoo, 2019. "Are cash-flow betas really bad? Evidence from the Greater Chinese stock markets," International Review of Financial Analysis, Elsevier, vol. 63(C), pages 58-68.
    • Handle: RePEc:eee:finana:v:63:y:2019:i:c:p:58-68
    DOI: 10.1016/j.irfa.2019.03.004
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    Cited by:

    1. Wu, Ming & Ohk, Kiyool & Ko, Kwangsoo, 2021. "Does cash-flow news play a better role than discount-rate news? Evidence from global regional stock markets," Journal of International Money and Finance, Elsevier, vol. 110(C).
    2. Nie, Jing & Yin, Libo, 2022. "Do dividends signal safety? Evidence from China," International Review of Financial Analysis, Elsevier, vol. 82(C).

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    More about this item

    Keywords

    Log-linear model; Greater China; Cash-flow beta; Discount-rate beta; Market status;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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