A Study Of Investor Disappointment Aversion Asset Pricing In Chinese Stock Market

Since the establishment of the investor's expected utility theory,the traditional finance based on the assumption of rational people has developed rapidly.A series of classical theories such as the mean-variance model,the capital asset pricing model,the efficient market theory and the Fama&French three-factor model have exerted great influence on the academic and business circles.However,with the continuous deepening of relevant research,a large number of market anomalies that contradict the expected utility theory have been discovered.In order to explain these financial anomalies,scholars began to combine human psychology to analysis from the perspective of irrational human.From this,behavioral finance came into being.Behavioral finance theory has been successful in solving various problems in the capital market due to its more realistic assumptions.The irrational behavior of investors is the pillar and core of the framework of behavioral finance.The continuous enrichment of behavioral finance theory makes more potential investor's irrational psychology to be excavated.In many studies,disappointment aversion as a special investor irrational psychology is gradually attracting people's attention.Disappointment aversion refers to the disappointment generated when investor's behavior result is lower than expected,and this disappointment will undoubtedly interfere with investor's decision-making choices and ultimately affect stock price fluctuations.So,how does investor disappointment aversion affect stock returns?Especially under the background of the late development of China's asset market and the high degree of irrational retail investors,the study of this issue has important theoretical and practical significance.This paper starts from the recursive utility function and relies on the investor disappointment aversion theory to construct the disappointment aversion investor utility function,and combines the wealth constraints to solve the disappointment aversion random discount factor expression,and uses the consumption market variables and stock market variables to derive the pricing model with disappointment aversion based on the consumer market and the pricing model with disappointment aversion based on the stock market.On this basis,combined with the data of China's capital market,this paper empirically examines the relationship between investor disappointment aversion and stock returns.The main conclusions are as follows:First of all,we use the disappointment aversion asset pricing model based on the consumer market to estimate investor preference parameters.The results show that the parameter k of investor disappointment aversion is close to 1,indicating that investors meet the characteristics of general disappointment aversion.Use the portfolio of size/book-to-market,size/momentum,size/operating profitable,and size/investment to test the cross-sectional performance of the general disappointment aversion asset pricing model based on the consumer market(CDA model)and the EZ model,the general disappointment aversion asset pricing model based on the stock market(SDA model)and the CAPM model.The results show that in explaining stock returns,the CDA model is better than the EZ model,the SDA model is better than the CAPM model,and SDA model is superior to CDA model from the internal perspective of disappointment aversion asset pricing model.Using consumer data and stock data to characterize investor disappointment events,the results show that investor disappointment events are more likely to occur during periods of economic slowdown,declining consumption growth,and negative stock market returns.The investor disappointment events based on stock market are more common than the investor disappointment events based on consumer market,it reflects the situation of great fluctuation in China's stock market.Secondly,in view of the good performance of the SDA model on the cross-section,in order to further explore the applicability of the disappointed aversion asset pricing model in China's capital market,the SDA model is compared with the classical asset pricing model and the asymmetric risk preferenc asset pricing model.The results show that in explaining the cross-section of stock returns,the performance of SDA model is not as good as the Fama&French three-factor model,Carhart four-factor model and Fama&French five-factor model,but in terms of time series,SDA model can provide smaller pricing error for some stock portfolios.At the same time,the upside and downside Beta asset pricing model and the loss aversion asset pricing model can be regarded as special cases of SDA3 model.The SDA model performs better than the upside and downside Beta asset pricing model and the loss aversion asset pricing model,indicating that the fitting effect of the asset pricing model with asymmetric risk preference is related to the setting of the reference point.This paper focuses on the financial market anomaly,and finds that there is mispricing phenomenon in China's stock market.In terms of the anomaly of stock financial indicators,the anomaly of cash flow to market value,operating profit,net operating assets,total assets growth and earnings to price are significant.In terms of the anomaly of stock characteristic indicators,the anomaly of skewness,kurtosis,idiosyncratic volatility,short-term reversal,medium-term reversal and long-term reversal indeed exist.After considering the investor disappointment aversion,the stock market mispricing disappeared,and the anomaly of operating profit,net operating assets,earnings to price,short-term reversal,medium-term reversal and long-term reversal disappeared.These results reveal the inner connection between investor disappointment aversion and some financial market anomalies.Adding the liquidity factor into the disappointment aversion asset pricing model,the results show that the negative impact of the downstate factor on stock returns is still significant,and liquidity is positively correlated with stock returns.Finally,in order to enhance the comprehensiveness of SDA model research,the performance of SDA model in different market environments is explored.Using the data of individual stocks with greater dispersion,the market environment is described from the four dimensions of market information efficiency,economic policy uncertainty,market quotation and investor sentiment.The results show that in explaining stock returns,the SDA model performs better in the stocks with lower market information efficiency.High economic policy uncertainty will enhance the role of investor disappointment aversion in asset pricing,and investor disappointment aversion is more significant in bear market.SDA model has higher R~2and smaller RMSE in low investor sentiment group,which confirms the argument that investor's psychology and decision-making behavior are affected by the market environment.The innovations of this paper are mainly reflected in the following aspects:First,it reveals the asset pricing effect of investor disappointment aversion.Previous literatures focused on analyzing the relationship between investor disappointment aversion and portfolio selection and futures hedging.This paper examines the impact of investor disappointment aversion on stock returns.Combining the theory of foreign investor disappointment aversion with China's capital market,this paper explores the role of investor disappointment aversion in stock price fluctuations,which is helpful to understand investor disappointment aversion.At the same time,the cross-sectional performance of disappointment aversion asset pricing model is compared with that of various asset pricing models,which provides a new reference for theoretical and practical research on the choice of asset pricing models.Second,the criterion for judging investor disappointment state is constructed.Previous literatures focus on the qualitative analysis of investor disappointment aversion,but this article quantitatively describes investor disappointment events.Using consumption data and stock data to calculate the trigger threshold of investor disappointment events,and describe the situation of investor disappointment aversion in China,which is helpful for us to understand the causes of investor disappointment in the decision-making process combined with the macro-economic environment and stock market environment.Meanwhile,the clear identification of investor disappointment events breaks down the application barrier of measuring disappointment aversion,and effectively promotes the application of the concept of investor disappointment aversion to other empirical research fields.Third,it supplements the perspective of explaining the financial market anomaly.Previous literatures mainly analyzed the causes of financial market anomaly based on other investor irrational psychology,such as overconfidence,herd behavior and loss aversion,etc.This paper explores the relationship between financial market anomaly and investor disappointment aversion.Using China's capital market data to test the existence of some financial market anomalies and explain the returns of financial market anomalies based on the asset pricing model of disappointment aversion,which will help to better understand the internal mechanism of financial market anomaly.At the same time,the disappearance of financial market anomalies under disappointment aversion highlights the importance of excavating investor irrational psychology.Fourth,it shows the difference in the impact of investor disappointment aversion on stock returns.Different from the existing research,this article carries on the scenario analysis of the asset pricing effect of investor disappointment aversion.Combine the investor disappointment aversion asset pricing model with the external environment of the capital market,and analyze the differences in investor disappointment aversion under different market information efficiency,different economic policy uncertainties,different market quotation and different investor sentiments,which will help to insight into the features of investor disappointment aversion in different market environment.At the same time,comparing the pricing effect of investor disappointment aversion asset pricing model in different market environments makes the research on investor disappointment aversion asset pricing more systematic.