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Corporate financial leverage and asset pricing in the Hong Kong market

journal contribution
posted on 2023-06-08, 05:35 authored by Ron Yiu Wah Ho, Roger StrangeRoger Strange, Jenifer Piesse
Our earlier paper [see Ho, R. Y.-W., Strange, R., & Piesse, J. (2006). On the conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. Journal of International Financial Markets, Institutions and Money, 16, 124-199] reported evidence supporting significant conditional pricing effects of beta, size, and book-to-market equity in the Hong Kong market. This study attempts to extend our earlier work by examining the pricing of beta in the presence of another commonly hypothesized risk factor, namely financial leverage, conditional on market situations, i.e. whether the market is up or down. Evidence indicates that market leverage (but not book leverage) exhibits conditional pricing relationship with returns. The study yields important results on a non-US market, which lend strong support to the conditional relationship hypotheses originally developed by Pettengill, Sundaram, and Mathur [(1995). The conditional relation between beta and returns. Journal of Financial and Quantitative Analysis, 30, 101-116; and (2002). Payment for risk: Constant beta vs. dual-beta models. The Financial Review, 27, 123-136] for the US market. The findings enrich our understanding of capital market behaviour, and should prove helpful to corporate managers and investors in their financial decision making.

History

Publication status

  • Published

Journal

International Business Review

ISSN

0969-5931

Issue

1

Volume

17

Page range

1-7

Pages

7.0

Department affiliated with

  • Business and Management Publications

Full text available

  • No

Peer reviewed?

  • Yes

Legacy Posted Date

2012-02-06

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