Securities Markets Where Some Investors Receive Information About Cash Flow Betas

Management Science, forthcoming

123 Pages Posted: 1 Oct 2020 Last revised: 24 Apr 2024

See all articles by Shiyang Huang

Shiyang Huang

The University of Hong Kong - Faculty of Business and Economics

Jan Schneemeier

Michigan State University - Eli Broad College of Business

Avanidhar Subrahmanyam

University of California, Los Angeles (UCLA) - Finance Area; 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 regarding cash flows as
well as their betas. Private information about betas, together with market makers’ risk aversion
and mean betas’ non-negativity, implies a non-linear 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, 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). Management Science, forthcoming, 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)

Michigan State University - Eli Broad College of Business ( email )

632 Bogue St
East Lansing, MI 48824
United States

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)

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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