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

摘要

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.