A Behavioural Finance Explanation of a Gearing-ß Inverse Association Referencing Weill’s Liquidity Result (in English)

Edward J. Lusk (), Michael Halperin () and Li Yue
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Edward J. Lusk: The State University of New York, College of Business and Economics, Plattsburgh, NY, USA and The Wharton School of the University of Pennsylvania, Philadelphia, PA, USA
Michael Halperin: The Lippincott Library of the Wharton School of the University of Pennsylvania, Philadelphia, PA, USA
Li Yue: The Otto-von-Guericke University, Magdeburg Germany

Czech Journal of Economics and Finance (Finance a uver), 2006, vol. 56, issue 3-4, 168-177

Abstract: The authors investigated Arnold’s conjecture that Leverage (Financial Gearing) and Operating Gearing should be positively related to the equity ß of the Sharpe/Lintner CAPM. They find for a sample of the S&P 500 firms that have been on that index continuously for more than 15 years, that ß is negatively associated with Leverage and Operating Gearing. Using Weill’s results for transitional economies, the authors suggest that liquidity may provide an explanation for this anomalous ß-Gearing inversion. The implications are: that (1) one should revaluate the positive associations posited for Financial and Operating gearing with ß and (2) consider the possibility of managing liquidity as a way to affect ß.

Keywords: financial gearing; leverage; liquidity; beta (search for similar items in EconPapers)
JEL-codes: G11 G12 G32 (search for similar items in EconPapers)
Date: 2006
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Persistent link: https://EconPapers.repec.org/RePEc:fau:fauart:v:56:y:2006:i:3-4:p:168-177

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