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Betting against low nominal prices: Evidence from China

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  • Zhang, Bing

Abstract

We offer evidence of a positive low-nominal-price return premium in China’s stock markets. We explain this by using Campbell and Vuolteenaho’s (2004) cash-flow and discount-rate betas. Low-priced stocks have high cash-flow that delivers high expected returns. The negative low-nominal-price return premium is negative in US markets and this discrepancy is attributed to reverse ranking of cash-flow betas for low-priced stocks. We find that high cash-flow risk for low-priced (high-priced) stocks in China (US) is associated with low price informativeness and analyst attention; the discrepancy of cash-flow betas in US and China is driven by book-to-market ratios and idiosyncratic volatility.

Suggested Citation

  • Zhang, Bing, 2023. "Betting against low nominal prices: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 88(C), pages 476-500.
    • Handle: RePEc:eee:reveco:v:88:y:2023:i:c:p:476-500
    DOI: 10.1016/j.iref.2023.06.017
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    Cited by:

    1. Jia, Yuecheng & Xu, Zheng & Yan, Shu & Zhang, Runyu, 2024. "Nominal price illusion, return skewness, and momentum," Finance Research Letters, Elsevier, vol. 67(PB).

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    Keywords

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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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