Research On Value Investment Strategy’s Effectiveness In China’s Stock Market

The diversification of investors in China’s securities market and the irrational nature of their investment behaviour have led to the dramatic fluctuations of our stock indexes,which do not reflect the basic dynamics of our economic development and have affected the healthy development of the national economy.In order to guide investors to rational investment,bring the stock market back to rationality,and develop in benign synergy with the national economy,scholars have conducted a great deal of research,one of the more famous being Benjamin Graham’s theory of value investment strategies.Its theoretical framework consists of three elements: intrinsic value,margin of safety,and market volatility.Of these,two elements are particularly important: intrinsic value and market volatility,which is the upward and downward movement of share prices around intrinsic value.If the effectiveness of value investing strategies in the market is to be studied,then market volatility is first studied.Based on the assumptions of limited rationality and that markets are not fully efficient,investors make irrational investment decisions under the influence of information,which necessarily triggers market volatility.The value investment strategy is based on the fact that the listed company itself has value and the financial factors reflect its intrinsic value,and when the share price is volatile,the margin of safety appears and the value investment strategy takes effect.From this,the study of whether a value investing strategy is effective depends,at its core,on market volatility.The exploration of the effectiveness of value investment strategy has been a hot and difficult issue for economists and scholars to study the capital market,domestic and foreign experts and scholars based on the effectiveness of China’s securities market value investment strategy has also done more research,and the results are also rich.From an overview of existing research,the following deficiencies of value investment strategies based on market volatility under the influence of information are found: 1.In terms of market volatility caused by stock market rumors spread by informal channels-gossip,existing research,in order to test the impact of information and rumors on stock prices,mainly uses real trading data from the market to test,however,the variables generated in these investment practices are difficult to observe,obtain,measure and these variables are changing at the same time,unable to meet the requirements of the exogenous hypothesis of economics: keep other conditions unchanged.This makes it difficult for researchers to eliminate other possible ways for information to influence risk decision-making behavior,and also causes difficulties to clarify the relationship between market information,investors’ risk attitude and decision-making behavior;2.In terms of market fluctuations caused by policy information disseminated through formal channels-news broadcasts,most of the existing literature on disposal effects uses microscopic investor transaction data to study,the shortcoming of such methods is the poor availability of data,making it difficult to replicate the study;most of the literature that selects macroscopic data to study uses simplistic models,lacking theoretical support;3.In terms of market fluctuations caused by financial information and sheep herd effect,the analysis of investor heterogeneity lacks theoretical model support;the empirical effect of studying investor behavior is limited by the availability and data quality of fund position and transaction data,usually the sample time interval is artificially divided to study the time variability characteristics of sheep herd effect,resulting in sample selection error and lack of scientific;4.In terms of the effectiveness of value investment,there are more models on factor models for asset pricing and fewer studies on how to construct and screen factors;at the same time,there are more studies on investor sentiment analysis and fewer studies on the effectiveness of value investment strategies to analyze China’s securities market based on fluctuations caused by policies and sentiment bands.In response to the lack of research,an exploratory study was conducted in this paper.Since the dramatic fluctuations in the market arise from information shocks,the study of fluctuations begins with the study of information shocks.This paper first divides information into financial and non-financial information according to whether it reflects intrinsic value,and then into informal and formal information according to the channel of dissemination of information.This paper examines the impact of non-financial information on market volatility using rumors as a proxy for informal channel information and news feeds as a proxy for formal channel information.The fluctuations caused by the above two channels of information are amplified to produce the sheep effect,which in turn leads to market collapse,but this does not correspond to the actual situation,indicating that the market has a mechanism to suppress the sheep effect.Finally,this paper designs a DMA multifactor model that includes emotional,policy and financial factors to study the effectiveness of value investment strategies in China’s securities market.In terms of market volatility caused by rumors,this paper adopts the method of behavioral experimental research and constructs a risk decision model with sentiment factors based on the prospect theory,and designs a risk decision experiment based on it;the impact of stock market rumors involving only false information on the risk decision appetite and investment behavior of buyers and sellers in the stock market is investigated separately,and the relationship between rumors and stock price volatility is examined;the information shock,risk attitude and inherent transmission mechanism of investment decision are examined using a double differential measurement model;2.In terms of market volatility caused by policy information,this paper uses web crawlers and text to analyze the political signals from 10 consecutive years of news broadcasts,and the political signals characterized by the frequency of news broadcasts to measure the relationship between the signals and stock price volatility;panel regression using a structured model is robust in terms of measurement;3.In terms of market volatility caused by financial reporting information and sheep herd effect,this paper firstly introduces financial factors into the mainstream CSAD model,and secondly constructs the panel data by classifying the asset portfolio according to the noise trader model.This method is more scientific than the existing studies that use subjective perception to segment the sample time and do group test;4.In terms of value investment effectiveness,this paper applies DMA to the asset pricing model for screening factors;using the broad market index and industry index as iterative indicators reflecting policy factors and investors’ irrational behavior,considering financial factors and other non-financial factors,we construct the optimal DMA multi-factor model for individual stocks and industries,and conduct in-sample real market backtest empirical research and out-of-sample prediction analysis.According to the research in this paper,the following conclusions are drawn:1.In terms of market volatility caused by stock market rumors transmitted through informal channels,it is confirmed for the first time that rumors cause market volatility.Specifically,through an experimental study on the behavior of stock market rumors that are not financial information transmitted through informal channels,the results show that rumors will directly affect investors’ emotions,change their risk attitudes and thus affect their investment behavior,which may lead to abnormal stock price fluctuations.2.In terms of market fluctuations caused by policy information transmitted through formal channels-news broadcasts,the yield of the investment portfolio can suppress the probability of stopping profit and stopping loss,which is consistent with the conclusion that short-term stock prices exhibit price inertia in existing research literature.3.In terms of market fluctuations caused by financial information and sheep herd effect,it is reasonable to classify the investment behavior of noise traders and informed traders based on the size of PB and SIZE of stocks,and the study shows that there is significant heterogeneity in investor behavior.4.In terms of the effectiveness of value investment,based on the DMA multi-factor model constructed by the asset pricing model and taking into account the margin of safety,an empirical study of in-sample regression and outof-sample prediction analysis was conducted,and the results show that the value investment strategy is effective in the Chinese securities market.The research value and innovation of this paper mainly embodies the following four aspects: 1.In the area of market volatility caused by stock market rumors spread by informal channels-gossip,it is the first time to verify that rumors shock investors’ emotions,then change their risk attitudes and ultimately affect their investment behavior,providing a new perspective for explaining stock price volatility,while also opening up a new path in the study of information influencing decision-making: the study is conducted from the emotional and psychological perspective.2.In terms of market volatility caused by policy information disseminated by formal channels-news feeds,this paper adopts a structured model for empirical evidence,which maximizes the preservation of the mechanism structure of the disposition effect model;the macro market index and text analysis techniques are used to deal with the represented political signal generation panel data to study the disposition effect,which opens up a new research path for explaining stock price volatility.3 In terms of market volatility caused by financial report information and the sheeple effect,the heterogeneity of investors is considered,financial information is introduced,and the panel model is constructed based on rigorous theory,which not only makes the test method robust,but also avoids the subjectivity of traditional methods(such as artificial classification of sample time period,time series test of grouping);finally,the study finds that the sheeple effect reflecting market volatility is not only associated with noise traders and informed traders in a single market,but also with resonance effects in multiple markets.4.In terms of the effectiveness of value investment,the broad market index and the industry indexes constructed in this chapter are incorporated into and constructed into the optimal DMA multi-factor pricing model for industries and individual stocks as emotional factors reflecting the policy and irrational behavior of investors in China’s national conditions,so as to make it more accurate in pricing stocks.The study not only enriches the theoretical results of behavioral finance research,but also provides some reference for investors to make rational investments and promote stable and prosperous stock market.The content structure of this paper consists of two main parts: the first part is an empirical study on the existence of market volatility in China’s securities market;the second part is an empirical study on the value investment strategy based on DMA asset pricing model and market volatility.