Heterogeneous Beliefs And Anomalies In Chinese Stock Market

With the development of asset pricing theory,the "rational hypothesis" and "homogeneity hypothesis" in Efficient Market Hypothesis have been widely questioned,while the heterogeneous beliefs are undoubtedly closer to reality in stock market.Heterogeneous beliefs hold that investors differ in their judgment of the same asset by different information received or heterogeneous prior,thus affecting the stock prices.The structure of "retail investors" in Chinese stock market has enhanced the information asymmetry,resulting in heterogeneous beliefs among investors,which led to irrational fluctuations in stock prices.In view of the coincidence between heterogeneous beliefs and the characteristics of China,I research on the heterogeneous beliefs to explain the anomalies in Chinese stock market.However,the above research faces two problems.The first is how to analyze the investors’ heterogeneous beliefs based on the characteristics of Chinese stock market theoretically.The second is how to use heterogeneous beliefs to explain anomalies empirically.In response to the above questions,this paper uses theoretical model analysis,portfolio analysis,cross-sectional regression,factor model regression,OLS and DID,to study whether heterogeneous beliefs could explain anomalies in Chinese stock market.The conclusions are as follows.First,this paper constructs a pricing model with heterogeneous beliefs from the expected differences between informed traders and public traders.The conclusions show that the difference between the informed information and public information is positive with heterogeneous beliefs.If heterogeneous beliefs increase,the market price and liquidity are higher,but trading cost,pricing efficiency and capital cost are lower.Heterogeneous beliefs are negatively correlated with investor welfare,and improving the quality of public information could improve the investor welfare of the whole market.This model proposes a mechanism for heterogeneous beliefs to explain stock anomalies,the greater the heterogeneous beliefs,the more noise information in stock price,and the lower pricing efficiency and more friction in stock market,and the accounting information is more difficult to enter in the stock price,and resulting in stock anomalies.Second,using the data from 2000 to 2018,this paper constructs a new heterogeneous beliefs variable.Empirical results show that heterogeneous beliefs can negatively predict stock returns and has an advantage in explaining stock returns in crash and bullish.This paper builds a B-3 factor model including market factor(MKT),size factor(SMB)and belief factor(FMG)to explain 106 market anomalies with CAPM model,FF-5 model and CH-3 model.The results from the alpha significance and GRS tests show that,B-3 factor model has obvious advantages.In addition,the heterogeneous beliefs could effectively explain the IPO anomalies by OLS regression.Thirdly,in order to ensure the robustness of the above theories and results,I further test the relationship between heterogeneous beliefs and anomalies using margin-lending system,IPO regulations and investor sentiment.Specifically,after the short-selling mechanism,pessimistic traders and negative information enter in the stock price,resulting in the decline of heterogeneous beliefs,and leading to the weakening of the stock market overreaction.The market-oriented reform of the IPO market weakens the regulatory constraints and reduces the heterogeneous beliefs,leading to IPO premium decline.Listed companies in emerging industries take advantage of the valuation bias and investor sentiment to attract economic resources to gather in emerging industries and optimize resource allocation in the real economy.The contributions are as follows,first,this paper theoretically puts forward a new heterogeneous belief mechanism and construct a new heterogeneous beliefs variable,enrich the research literature of heterogeneous beliefs.Secondly,compared with the other factor pricing models,the B-3 model has an advantage in explaining stock anomalies.The results enrich the explanations of anomalies.Finally,this paper replicates 106 anomalies in trading market and 8 anomalies in IPO market,and reviews the performance of Chinese anomalies in a comprehensive way,and enrichs the anomalies research literature.