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Volume 56, Issue 3 -4

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A Behavioural Finance Explanation of a Gearing-? Inverse Association Referencing Weill?s Liquidity Result (in English)

Halperin, Michael; Lusk, Edward J.; Yue, Li

Year: 2006   Volume: 56   Issue: 3 -4   Pages: 168-177

Abstract: The authors investigated Arnold's conjecture that Leverage (Financial Gearing) and Operating Gearing should be positively related to the equity? of the Sharpe/Lintner CAPM. They find for a sample of the S&P 500 firms that have been on that index continuously for more than 15 years, that? is negatively associated with Leverage and Operating Gearing. Using Weill?s results for transitional economies, the authors suggest that liquidity may provide an explanation for this anomalous ?-Gearing inversion. The implications are: that (1) one should revaluate the positive associations posited for Financial and Operating gearing with ? and (2) consider the possibility of managing liquidity as a way to affect?

JEL classification: G11, G12, G32

Keywords: financial gearing; leverage; liquidity; beta

RePEc: http://ideas.repec.org/a/fau/fauart/v56y2006i3-4p168-177.html

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