Research On The Influence Of Investor Heterogeneity On Price Discovery Function Of Stock Market

The price discovery function is to realize the dynamic description of the equilibrium price through the formation mechanism of the stock price,which the new market information is reacted in the process of the supply and demand of the stock investment and the transaction behavior in the stock price.But in turn,the randomness of price does not necessararily mean that the market is effective,but that contains a very rich information of investor behavior(Hu Changsheng et al.2017).In the long term,the stock price returns to its intrinsic value(the price discovery function),which is inevitable,but it exists a strong randomness in the short term.The reason is that the psychology and preference differences of investors are leading to this randomness.Especially the spread of the global financial crisis in 2007 and the slump of Chinese stock market between 2014 and 2015,and these drastic swings can not be all attributed to the rational explanation of the traditional finance based on macro fundamentals and fundamental changes of companies.Although the price discovery function is effectively affected by the efficiency,transparency and other aspects of the market,The investment philosophy and psychology of Chinese investors are not yet mature,the cognitive biases of investors and irrational sentiment can effectively impact the price discovery function of the stock market.The irrational behavior of investors can cause the panic of stock market.Due to that stock price reflects the supply and demand of investors and the result of investment behavior according to the new market information.Then,we can be better to explain the heterogeneity degree from the stock price to its intrinsic value by investor heterogeneity theory.This paper mainly studies the influence of investorhetyrogeneity on stock price discovery function from the following aspects:Firstly,as the theoretical basis of the full paper,we sums up and sorts out the relevant theory of the price discovery function from the perspective of financial microstructure.Specifically we explain that how the demand is transformed into the process of market transactions from the market liquidity,transparency,short selling constraints and transaction costs.In addition,we provides a theoretical basis for the study stock price discovery in the subsequent chapters from the investor type,investor sentiment and investor feedback transaction behavior.Combined with the theoretical basis of the full paper,we implements the basic work of the full text of empirical testing.(1)this paper explores the evolution of investor heterogeneity from a practical point of view,and explains how the stock price discovery is affected by investor behavior.(2)we distinguish the type of investors from the investors’ attitude to the new information and the expected future price of the asset,and we also sum up related research about the impact of the interaction of heterogeneous investor on the dynamic asset prices.(3)this chapter summarizes the indicators of investor sentiment by domestic and foreign scholars,and expounds the applicability of each index.Ultimately we chooses the most reasonable investor sentimental agent index and constructs the method of Baker and Wurgler(2006,07)Investor sentiment composite indicator,which is the following empirical test for basic work.In contrast to the overall stock market investor sentiment,institutional investor sentiment and individual investor sentiment indicators of the trend chart,we find that individual investors are more sensitive to information compared to the overall stock market investors and institutional investor sentiment.And in the rational degree the institutional investor sentiment is more reasonable to the expected price.In the aspect of empirical research,this paper begins to study the impact of heterogeneous transaction behavior on the stock market price discovery process,which is embodied as institutional investors and individual investors.The theoretical conjecture of this paper points out that investor sentiment is a dynamic process in the process of stock market operation and it is not static.That is a process of mutual conversion between rational sentiment and irrational sentiment.Different types of investors(institutional investors and individual investors)are not consistent with the impact of the stock market price discovery function,and this non-uniform condition is more significant.Therefore,this chapter makes a detailed analysis of the STAR form and obtains the corresponding empirical conclusion considering the characteristics of sequence nonlinearity and heteroskedasticity which is based on the traditional STAR model.In further research,we materializes the rational sentiment and irrational sentiment and analyzes the differences of the effect of the sentiment and irrational sentiment on the stock price discovery based on the summarize of relevant related literatures and the empirical study of chapter 4 on the conversion between rational sentiment and irrational sentiment.Therefore,it can reduce market volatility to stabilize the role of the market.In this paper,the time-impulse response function and the equal-interval impulse response function of SV-TVP-VAR model are used to study the influence of investor’s rational sentiment and irrational sentiment in the stock price discovery process under different development conditions of stock market.The basic conclusion is that the influence of the rational sentiment of the institutional investors and the individual investors on the stock price deviation is consistent and the rising of the rational sentiment will promote the effective function of the stock market price discovery function.But there is a significant difference in the impact of the rational mood on the price discovery function at different points of time.In particular,the irrational sentiment of individual investors continued to rise during the financial crisis in 2007,which expanded in the short term Price deviation,While when the market is dominated by the rational investors in the long-term,this will force irrational investors to change their investment strategy and transform into a rational investor.This confirms the influence of investors’ rationality and irrational sentiments on the stock market price discovery function in Chapter 4.Finaly,we takes further empirical tests on the impact of investors’ heterogeneity on the time-varying effects of stock prices in chapters 4 and 5 continuing the contents of the previous three chapters.Investors are affected by sentiments,resulting in the deviation of stock price discovery process.But in the real stock market,the bias of stock market price discovery process will in turn affect the investors on the stock price expectations and awareness.This chapter takes investors ’heterogeneity into the analysis framework of investor feedback trading,discussing how the investors’ irrational sentiments can further expand the stock price from its intrinsic value in the feedback mechanism and how the rational investors play in the stock price deviation non-consistent effect.It is found that the feedback effect of institutional rational investors tends to be microwaveized from the perspective of rational investors,and the feedback effect of individual rational investors is relatively intense,which means that the information which investment decisions of institutional rational investors and individual rational investors rely on are very different.From the perspective of irrational investors,due to the impact of irrational sentiments,institutional investors form a significant chase into the investment behavior in the short term,while in the long term the continued impetus of the newly formed stock price trend will be weak.On the contrary,the positive feedback effect of individual irrational investors is strong,and has a long persistence,which highlights the long-term trend characteristics of individual irrational investors.In view of the above empirical analysis of the results,we mainly puts forward the corresponding optimization path for the effectiveness of the price discovery function in Chinese stock market.The price discovery function of China’s stock market is not efficient,which is still subject to many factors,such as the long price discovery cycle and the price deviation from the inherent value of defects.These factors are restricting the stock market price discovery function.However,this paper proposes to improve and strengthen from the three aspects of investor structure,market information disclosure and government supervision efficiency in order to ensure the normal function of the stock price discovery function.After long-term education investors have a certain level of investment awareness and investment experience to reduce irrational investment behavior,so that China’s stock market gradually matures towards maturity.