Heterogeneous Beliefs Impact On Stock Returns

The premise of the standard financial theory is that investors are rational, and one of the key assumptions is that investors all have homogeneous beliefs. But with the development of behavioral finance, evidence from many areas of empirical makes people start asking questions about the theory. Opposed to homogeneity beliefs, heterogeneous beliefs are more consistent with the reality, and the existence of heterogeneous beliefs will produce a significant impact on stock returns. Early in 1977, Miller has proposed his idea through qualitative analysis, he pointed that the stock price will be overestimated under the investors' heterogeneous beliefs and short-selling restrictions, because the stock returns has only reflected the views of optimistic investors, pessimistic investors will be excluded from the market. After a period of adjustment, the stock's future earnings will be reduced, the more overvalued at the beginning, the greater loss will be, and therefore heterogeneous beliefs are easily lead to the stock market speculative bubbles. This article analyzes the proxy indicators of the existing heterogeneous beliefs, then choosing Bulls and Bears index, additional turnover to prove it. The paper uses GARCH and three-factor model to study the relationship between heterogeneous beliefs and stock returns, the results shows that the treated medium-term Bulls and Bears index has a significant negative correlation with the stock returns, which means the greater the current heterogeneous beliefs are, the lower post-stock returns will be. When the empirical comes to the additional turnover, the conclusion is still established, even added the three factors. Compared with the foreign study results, the impact of heterogeneous beliefs on stock returns in our country is bigger, this may be due to the mechanism of China's strict restrictions on short selling, immature stock market and investors. In view of this, this paper presents a few recommendations to promote the long-term healthy and stable development of the stock market.