Betting against low nominal prices: Evidence from China

Bing Zhang

International Review of Economics & Finance, 2023, vol. 88, issue C, 476-500

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.

Keywords: China’s stock markets; Low-nominal-price return premium; Cash-flow beta; Discount-rate beta; Analyst forecasts; Price informativeness (search for similar items in EconPapers)
JEL-codes: G12 G14 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:88:y:2023:i:c:p:476-500

DOI: 10.1016/j.iref.2023.06.017

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