Beta in the Chinese Markets: Wanted Dead or Alive

Title
Beta in the Chinese Markets: Wanted Dead or Alive
Publication Date
2011
Author(s)
Bollen, Bernard
Dempsey, Michael
Li, Larry
Type of document
Journal Article
Language
en
Entity Type
Publication
Publisher
Virtus Interpress
Place of publication
Ukraine
UNE publication id
une:13909
Abstract
The capital asset pricing model (CAPM) states that higher beta stocks are priced to deliver higher returns. Even when this is not the case, however, goods and services that are inherently more (less) sensitive to the economy are expected to display stable higher (lower) betas. By this we mean, that when the economy rises, the underlying stocks of those firms that benefit the most are those that we expect to rise the most, and thereby have higher betas. And, in reverse, for economic downturns. In the present paper, we apply both considerations (higher beta stocks have higher average performances, and higher beta identifies those firms that respond most sensitively to the economy) to the Chinese markets. Our essential finding is that the level of stability of beta found in the U.S. markets is not replicated in Chinese markets. Over the period of 1997-2006, the betas of Chinese stocks tend to revert to the mean (beta = 1). Not surprisingly, Chinese betas provide only weak value as indicators of portfolio exposure to subsequent market movements.
Link
Citation
Corporate Ownership & Control, 8(4), p. 305-312
ISSN
1810-3057
1727-9232
Start page
305
End page
312

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