Heterogeneous Beliefs For Stock Returns

The pre-assumption of Capital Asset Pricing Model is that all investors hold same expectations on the distribution of the future yields on the same assets, which are also known as Homogeneous Beliefs. However, in the real market, certain mechanisms lead to diverse opinions and views on future yields. This is called Heterogeneous Beliefs, which have significant impact on stock yields. Hence, the research of Heterogeneous Beliefs on stock yields in our securities markets is of great necessity.Firstly, the paper summarized the principle theories and empirical tests from Chinese and foreign scholars, and brought up the question of the significance and existence of studying Heterogeneous Beliefs. Secondly, the adjusted turnover rate and stock yield volatility are selected as the measuring indicators. The portfolio approach and panel data regression are applied to study the qualified stocks listed on Shanghai Stock Exchange from2006to2012. The result shows that (1) Portfolio approach revealed that the expected yield on stock would decrease as Heterogeneous Beliefs increases;(2) After controlling market factors, book-to-market ratios, scale factors and momentum factors, Heterogeneous Beliefs and stock yields are still significantly negatively correlated. Thirdly, the article studied the impact of Heterogeneous Beliefs on stock market plunge, where negative skewness and volatility ratios are chosen as explanatory variables. The result shows that Chinese stock market plunge is not significantly correlated with Heterogeneous Beliefs. Lastly, the article studied if Heterogeneous Beliefs would affect stock yield when short-sale is allowed. By comparing the stock yields before and after Short-Sale Constrains, it is clear that short-sale helps to reduce stock yield volatility and to stabilize the securities market.The article made the conclusion based on empirical tests and provided suggestions over Heterogeneous Beliefs and Short-Sale Constrains.