Corporate financial leverage and asset pricing in the Hong Kong market

Ho, Ron Yiu Wah, Strange, Roger and Piesse, Jenifer (2008) Corporate financial leverage and asset pricing in the Hong Kong market. International Business Review, 17 (1). pp. 1-7. ISSN 0969-5931

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Abstract

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.

Item Type: Article
Schools and Departments: School of Business, Management and Economics > Business and Management
Depositing User: Roger Strange
Date Deposited: 06 Feb 2012 20:14
Last Modified: 23 Mar 2012 14:05
URI: http://sro.sussex.ac.uk/id/eprint/24917
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