Abstract
We offer evidence of a positive low-nominal-price return premium in China’s stock markets. We explain this by using Campbell and Vuolteenaho’s (2004) cash-flow and discount-rate betas. Low-priced stocks have high cash-flow that delivers high expected returns. The negative low-nominal-price return premium is negative in US markets and this discrepancy is attributed to reverse ranking of cash-flow betas for low-priced stocks. We find that high cash-flow risk for low-priced (high-priced) stocks in China (US) is associated with low price informativeness and analyst attention; the discrepancy of cash-flow betas in US and China is driven by book-to-market ratios and idiosyncratic volatility.
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