A Study On Lssues Of Asset Mispricing--A Theoretical & Empirical Discussion

With the development of new finance, modern finance faces the challenge from the empirical research. Most typically, classical finance cannot explain the anomalies in the financial market, so the mispricing theory is the alternative interpretative theory. In brief, the main point of my dissertation is that the asset price consists of two parts, the fundamental part and the mispricing part. The reason of mispricing is either due to the wrong belief which is induced by the wrong application of Bayesian rule or to asymmetric information.From the perspective of "Posterior Probility" and "Posterior Mean", the dissertation constructs "Model of Mispricing Based on Cognitive Bias" and "Model of Mispricing Based on Asymmetric Information".Chapter one is "Literature Review". Firstly, it reviews symmetric the research on EMH, behavioral finance, asset pricing and anomalies etc. Secondly, it analyzes the assumptions of tranditional asset pricing theory, then point out the limitations of tranditional asset pricing theory and the main issues the dissertation focuses on.Chapter two is "Significance, Framework and Methodology of Study". It provides the significance, framework and methodology of my dissertation according to the actual situation of China. And it puts forward the originality of the dissertation and the issues that need further research.Chapter three is "Asset Pricing Model Based on Symmetric Information and Perfect Rationality". Under the assumption of the random walk of dividend or mean revertion of dividend, it develops models of pricing based on Symmetric information and perfect rationality using the dynamic control theory.Chapter four is "Static and Dynamic Bayesian Learning". It provides the mathematical model to describe how information is integrated into the posterior mean about asset return. In the one hand, it constructs static Bayesian Learning by the probability theory; in the other hand, it develops dynamic Bayesian Learning using filtering theory. This part establishes a robust theoretic base to construct models based on cognitive bias and asymmetric information in the following part of my dissertation.Chapter five is "Model of Mispricing Based on Static information". Using the probability theory and the dynamic control theory, it constructs four models of mispricing: (1) Model of Mispricing Based on Overconfidence; (2) Model of Mispricing Based on Conservism Bias; (3) Model of Mispricing Based on Representative Bias; (4)Model of Mispricing Based on Asymmetric Information. These models prove the cognitive bias due to psychology of investor and asymmetric information will lead to mispricing. Nextly, dissertation extends it to "Model of Mispricing Based on Multi-securties". Finally, it uses model of mispricing to explain some anomalies in capital market.Chapter six is "Model of Mispricing based on Dynamic Information". It further develops the static model of mispricing to dynamic model of mispricing based on dynamic private information by filtering theory. It also constructs four models: (1) Model of Mispricing Based on Dynamic Private Information; (2) Model of Mispricing Based on Asymmetric Information Resulted from Private Information; (3) Model of Mispricing Based on Representative Bias I ; (4) Model of Mispricing Based on Representative Bias II. These models also prove the cognitive bias due to psychology of investor and asymmetric information will lead to mispricing.Chapter seven is "Empirical Test about Mispicing Theory". It uses 480 sample of Chinese Stock Market from 1997 to 2002 to test mispricing theory. The result supports the mispricing theory:(l) There is mispricing in Chinese Stock Market;(2) Cognitive bias and asymmetric information are the reasons of mispricing.The main contribute is: (1) The dissertation develops eight new models of mispricing to analyze the issue of mispricing; (2) It provides 24 theorems and 19 corollaries, and proves the main reasons of mispricing are the cognitive bias due to psychology of investor and asymmetric information; (3) It analyzes the mispr...