Securities Markets in Which Some Investors Receive Information About Cash Flow Betas

Shiyang Huang (), Jan Schneemeier (), Avanidhar Subrahmanyam () and Liyan Yang ()
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Shiyang Huang: Faculty of Business and Economics (HKU Business School), The University of Hong Kong, Pok Fu Lam, Hong Kong
Jan Schneemeier: Eli Broad College of Business, Michigan State University, East Lansing, Michigan 48824
Avanidhar Subrahmanyam: Anderson Graduate School of Management, University of California at Los Angeles, Los Angeles, California 90095
Liyan Yang: Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada

Management Science, 2025, vol. 71, issue 7, 6155-6183

Abstract: We analyze a single-factor setting in which there is private information regarding cash flows as well as their betas. Private information about betas, together with market makers’ risk aversion and mean betas’ nonnegativity, implies a nonlinear price schedule whose stochastic slope covaries positively with order flow when the expected factor payoff is positive and vice versa. We predict a negative relation between the covariance and expected returns and an attenuation of the beta anomaly in asset returns after accounting for this relation. Empirical tests confirm these predictions.

Keywords: beta information; price impact; liquidity risk; asset prices (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:71:y:2025:i:7:p:6155-6183

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