| Modern asset pricing model tends to believe that all investors are reasonable, and assumes that all investors have the same expectations of the return of risky assets. However, many financial irregularities and theories demonstrate that this hypothesis is not likely to be true. Under this assumption, many asset pricing problems cannot be explained fully. It was not until the emergency of Miller’s theory on the heterogeneous beliefs and short sale restraint that the problem was finally solved. The theory points out that under short sale restraint, optimistic investors are willing to pay a high price for the stocks from the pessimistic investors so that stock price will be overvalued. With the update of information and narrowing of divergence, the future return will decrease and the overvalued of stocks will be corrected.In this paper, the idea of Miller’s research is followed. For the first time the dispersion of analysts’ earning forecast was used as the proxy of heterogeneous beliefs in the analysis of Chinese capital market. The advantages and feasibility of the proxy is discussed. In the model part, the heterogeneous beliefs by Zhang Wei (2006) was developed. Based on this model, empirical study is executed. The method used is based on Fama (1996) and Diether (2002).The study shows that the higher dispersion the stock has, the lower return it is likely to have in the next investing period. Therefore, based on this characteristic of stocks, an alpha strategy is put forward. The alpha strategy seems very stable in a certain period. In addition, the study also looks into the relationship of analysts’ forecast dispersion change and excess return. The result shows when the dispersion diverges, the stock may enjoy an excess return. The divergence of the dispersion is the Granger cause of the excess return.Considering all the research conclusions, the suggestion towards the investment of market participants and policies making of administrative is put forward. |
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