Securities Markets Where Some Investors Receive Information About Cash Flow Betas

103 Pages Posted: 1 Oct 2020 Last revised: 11 May 2022

See all articles by Shiyang Huang

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics

Jan Schneemeier

Indiana University - Kelley School of Business

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; Institute of Global Finance, UNSW Business School; Financial Research Network (FIRN)

Liyan Yang

University of Toronto - Rotman School of Management

Date Written: September 13, 2020

Abstract

We analyze a single-factor setting in which there is private information about cash flows as well as
their betas. The latter type of information multiplicatively affects cash flow volatility conditional
on order flows. This aspect, together with market makers’ risk aversion and betas’ non-negativity,
implies a stochastic price impact whose covariance with order flow is positive 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, asset prices

JEL Classification: G11, G12, G14

Suggested Citation

Huang, Shiyang and Schneemeier, Jan and Subrahmanyam, Avanidhar and Yang, Liyan, Securities Markets Where Some Investors Receive Information About Cash Flow Betas (September 13, 2020). Available at SSRN: https://ssrn.com/abstract=3691730 or http://dx.doi.org/10.2139/ssrn.3691730

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Jan Schneemeier (Contact Author)

Indiana University - Kelley School of Business ( email )

1275 E 10th St
Bloomington, IN 47405
United States

HOME PAGE: http://www.jan-schneemeier.com

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area ( email )

Los Angeles, CA 90095-1481
United States
310-825-5355 (Phone)
310-206-5455 (Fax)

Institute of Global Finance, UNSW Business School

Sydney, NSW 2052
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

Liyan Yang

University of Toronto - Rotman School of Management ( email )

105 St. George Street
Toronto, Ontario M5S 3E6 M5S1S4
Canada

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