The Measure Of China’s Stock Mispricing And Its Causes---Comparison Of The Primary And Secondary Markets

Due to the special nature of the chinese stock market system, the stock price deviate from the value of the stock seriously. due to long mispricing, the resource allocation function of the stock market can not be fully realized.Research on stock mispricing has important theoretical and practical significance.on one hand, research can explain the internal mechanism of stock price volatility of country in transition theoretically. On the other hand, research can provide behavioral decision for market stakeholders, especially the behavior of decision-making basis.So far, the study on the stock market price is basically the study of the stock market bubble at home and abroad. But the stock mispricing in this article is stock prices deviating from the intrinsic value of the stock. When the stock mispricing is positive number, it means the stock price is greater than the value of the stock, the stock is overvalued; when the stock mispricing is negative number, it means the stock price is less than the value of the stock, the stock is undervalued.In this paper, there are two main works. One is the measure of chinese stock mispricing; another is the analysis of the causes and the comparison of the primary and secondary markets.Based on the analysis of stock prices and the stock value, this article put forward the concept of the stock market mispricing. First, this paper analysis the stocks intrinsic value, and the impact mechanism of money illusion hypothesis and the resale option hypothesis to the stock market mispricing. On the measure of chinese stock mispricing, in the primary markets, this paper use excessive return rate of the first day; in the secondary markets, we uses two methods. Using quarterly data during June2002to march2011,the first method is the dynamic residual income VAR model, which use the subtraction between the estimated market value ratio and the actual market value ratio as mispricing. Using annual data during1992to2010, the second method is the deformation of residual income model, using net assets per share plus residual income per share as stock value, and the mispricing equal stock price subtract stock value and then divide by stock value. Through contrasting the two kinds of mispricing with the real situation, the result is better than the shanghai composite index and the price-earnings ratio. The mispricing reflect the investment value of the stock market.As to the causes of mispricing, this article use CPI as the proxy variable for money illusion and use turnover as the proxy variable for resale option. In the primary market, this paper use cointegration theory to study the causes of mispricing. In the secondary market, this paper use the nonparametric variable coefficients partial linear model. On the end, this paper Comparison of the primary and secondary markets for the two hypothesis.The main conclusions getting through empirical study as follows:First, there are mispricing both in primary market and in secondary market. there are money illution effect and resale option effect both in primary market and in secondary market, the stock often be overvalued. The last two years, the stock market is relatively undervalued.Second, stock market mispricing has no direct correlation with the stock index. Mis-pricing is more reasonable than the price-earnings ratio price. the study shows that the stock index is not a good reflection of the value of stock market investments. In the long term, the stock index is poor. Comparing with p/e ratio, mispricing is more reasonable.Third, the effect of money money illusion hypothesis and to mispricing is different in the primary and secondary markets. Using the nonparametric variable coefficients partial linear model, in the primary markets, money illusion effect get stronger and resale option effect get weaker. While in the secondary markets, money illusion effect get weaker and resale option effect get stronger.