The Empirical Reasearch On The Momentum Effect Of Stock Market Based On Investors’ Heterogeneous Beliefs

The momentum effect refers to return continuation on the stock market, stocks with high returns over the past certain time continues continu to outperform stocks with low past returns over the same period.The momentum effect seems to be found the only anomaly still (Schwert,2003) and is recognised as the "premier anomaly" (Fama & French,2008). It involves several important problems in market efficiency, investment strategy and behavioral biases inthe traditional finance and the behavioral finance. The momentum effect is one of the challenges to the traditional asset pricing theory based on the homogeneous beliefs and medium-term returncon tinuation has become a hot issue. So this dissertation focuses on the momentum effect, discusses the influences of heterogeneous prior beliefs、gradual information diffusion and limited attention on the momentum effect, and tries to find the causes of the momentum effect by means of providing new theoretical perspective and empirical evidence.It is of the theoretical significance and practical value to research on the causes of the momentum effect based on heterogeneous beliefs in China. In theory, firstly, the researches on the momentum effect based on heterogeneous beliefs are theory extension and application of heterogeneous beliefs asset pricing theory.The researches could help to testify the price formation mechanism and perfectthe relationship between heterogeneous beliefs and price changes. Secondly, the researches could recognizethe different influence of heterogeneous prior beliefs、gradual information diffusion and limited attention on price, find the source of excess return and develop the cause of the momentum effect. Finally,the researches could help to discuss the formation of the momentum effect from the internal mechanism of price formation, perfect price formation mechanism in capital market and promote the development of capital market microstructure theory. In practice, firstly, the researches could help investors to avoid speculation by heterogeneous prior belief, stable their irrational emotions, reduce their irrational behavior, apply momentum investment strategy, cultivate the rational investment philosophy. Secondly,the researches could help policy-makers to perform their monitoring functions better,regulators to further understand the law of Chinese stock market, maintain the capital market stability and control the risk of the stock market better.Taking Chinese stock market as the research background, this dissertation takes the causes of the momentum effect as the research objective, and engages to construct a theoretical framework to explain the causes of the momentum effect based on heterogeneous beliefs and verify the framework by empirical research with Shanghai and Shenzhen a-share listed companies. Specifically, the author wishes to gradually achieve three research goals in this dissertation.First, we hope to construct explain framework for causes of the momentum effect based on heterogeneous beliefs. Then, we hope to provide empirical evidence for explain framework. finally, we hope to make the corresponding policy recommendations on the basis of causes.The research design of this dissertation conducts along" raise issues→ theoretical analysis→ empirical analysis→conclusions and policy recommendations" and spreads in turn according to the four progressive levels. The first level is the basic research In this part, relevant literature is reviewed, the deficiency of the present study is found, and the main body in the subsequent research is pointed out. The second part is the theoretical analysis. In this level, related concepts are defined, the basic theory of research on causes of the momentum effect based on heterogeneous beliefs is analyzed, the theoretical explain framework of causes of the momentum effect based on heterogeneous beliefs is constructed. The third level is the empirical analysis. The empirical evidence of framework of causes of the momentum effect based on investors heterogeneous beliefs is provided. The fourth level is the conclusions and suggestions.Based on the research ideas mentioned above, this dissertation consists of eight chapters:Chapter 1 is the introduction. In this part, some basic issues in this dissertation are mainly discussed,including research background、significance of this dissertation、 literature review、research thought、research methods、research content、research structure and innovation points.Chapter 2 is research on the existence of the momentum effect in Chinese stock market. Using the return of Shanghai and Shenzhen A shares, the existence of the momentum effect is validated respectively by traditional momentum investment strategy、consistent winners consistent investment strategy and a momentum investment strategy. The empirical findings confirm significant short-term and medium-term momentum effect from three different perspectives through three different investment strategies.Chapter 3 is about theoreticalanalysis of causes of the momentum effect based on heterogeneous beliefs. In this part, the explain framework of causes of the momentum effect based on heterogeneous beliefs is constructed in normative research paradigm. From the formation mechanism of heterogeneous beliefs, heterogeneous prior beliefs、 gradual information diffusion and limited attention are analyzed in order to indicate these can lead to the momentum effect.Chapter 4, chapter 5 and chapter 6 are about empirical tests. The author tests the impact that heterogeneous prior beliefs、gradual information diffusion and limited attention can form the momentum effect. These three parts are the core of this dissertation, the corresponding empirical evidence is provided based on theoretical analysis.Chapter 7 is about contribution analysis of the momentum effect based on heterogeneous beliefs. Chapter 4, chapter 5and chapter 6 respectively testifythat heterogeneous prior beliefs、gradual information diffusion and limited attention have explanatory power about price momentum in some extent. In this chapter, a comprehensive quantitative analysis of the causes of the momentum effect is constructed and ascertained the degree of importance.Chapter 8 is about conclusions and policy recommendations. First of all, summarize the above theoretical researches and empirical tests. Secondly, make policy recommendations for reduceing the impact of heterogeneous prior beliefs、gradual information diffusion and limited attention according to the empirical results.Finally, sum up the contributions and shortcomings of this dissertationThe previous research on causes of the momentum effect is very extensive. Innovations and contributions of this dissertation are as follows. Firstly, innovation perspective. The researcher study the momentum effect from the mechanism of heterogeneous beliefs as the breakthrough point,which itself is a kind of innovation.Hong & Stein (2007) summarized mechanisms that heterogeneous prior belief, limited attention, the gradual flow of information can generate investor heterogeneous beliefs.This dissertation expands that the previous researchers only discussed what influence a single factor or dimension had on the momentum effect.Secondly, the previous research was taken qualitative method, while this dissertation is the first one researches the causes of the momentum effect by quantitative method. We conduct a censored life regression model to investigate whether characteristics associated with heterogeneous beliefs can affect the momentum effect.The research could help to ascertain the degree of importance and make policy recommendations according to importance.Thirdly, Chen et.al (2015) proposes a measure of momentum persistency based on the duration of consistent winners and losers.We study the momentum effect by buying the winner portfolios and selling the loser portfolios and consider two main bodies at the same time.So we introduces a new measure of momentum persistency based on the minimum duration of consistent winners and losers.