Differences In Behavior Nash Equilibrium Model Of Stock Pricing Driven Research

The asset pricing is always the key concerns for researchers of finance and investment, while the market efficiency is decisive for financial system stability and investors’ rational behaviors. Investors, corporations and market are the three crucial and combining elements of financial system. The investment decision, which in turn influences the price-discovery function of the financial system, is based on the firm’s performance. This paper looks into the mechanism of financial market equilibrium and the concerning factors for the investors both theoretically and empirically.The first part is the literature review and cutting edge of stock valuation theory. The second part begins with the four major models of stock valuation theory, i.e., DDM, DCF, RIM, and PEG Ratio Model, based on which a valuation model is presented with heterogeneous investors’behavior. With different believes on the theoretical price of the stock, the investors behave differently when trying to maximize the utility function. And the stock market price changes when they buy or sell simultaneously. In the model, the market reaches the Nash-Equilibrium based on the investors’rationality and the symmetric information. The equilibrium price is the weighted linear combination of believes among different investors. Also the hypothesis is advanced for a more general case——multi-investor, which is the theoretical basis of the empirical study. The empirical part uses the OLS regression to check the relative significance and commitment of concerning factors of the models. The coefficients of the regression imply that the investors emphasize mostly on the long-term earning growth. Also the short term earning growth and equity book value impact largely the return premium. The coefficient of long-term expected rate of return is opposite as what it should usually be, which should be attributed to the inertial expectation of technical investors. The last part is devoted to policy suggestion on market efficiency improvement and corporation value maximization.