The Early Warning Role Of Asymmetric Information And Its Impact On Asset Pricing Based On Data Of Shanghai Stock Exchange

Report on the Work of the Government2014pointed out that advancing the existing stock-issuing system to a registration system. Until then, the approval system has been taken in IPO and daily disclosure of information. Whether in the IPO or the daily disclosure, an inadequate system will cause severe information asymmetries in the market.This article aims to study the present situation of information asymmetry in our stock market and its impact on stock prices, and hoped that the recommendations to regain their confidence in the capital market, also hopes to benefit for deeper reform of the capital market.The first part is introduction, first it introduces the reason and meaning of the topic selection; then it analyses related literature from the metric of non-symmetric information and assets pricing model, grasps research status of predecessors on this problem; last it established the framework.Part II analyses the impact of private information on asset pricing from two dimensions. Historical data indicates that there is some kind of relationship between private information and asset pricing. Then theoretical analyses indicate that private information can increase yields, but public information can not.At first, the third part analyses two measures of asymmetric information:PIN and VPIN models, although the latter one is built on PIN model, but it overcomes the complex issues of parameters estimation and can reflect the information in the high frequency market, so select VPIN model. Then Fama-French model is analyzed and compared with CAPM and APT models, finally choose Fama-French model.The forth part is empirical analysis. Firstly analysed early warning of VPIN both in the long term and short term, VPIN dramatically changes before stock prices grow, significantly out of its normal level, when stock prices stop falling, VPIN decreases rapidly return to its normal value. Then when analyzing the impacts on asset pricing under asymmetric information,we found that in Shanghai Stock Exchange market, asymmetric information has significant effect on asset pricing, that is, higher level of asymmetric information in the stock market, higher asset yields. Non-informed traders are at an informational disadvantage position, and therefore the stock give its higher rate of return. We also found that systemic risk is very big in Chinese stock market, the value of beta coefficient in Shanghai stock market is limited. Still maturing of the local financial market in China is needed.The fifth part is conclusions and policy recommendations. Combined the theoretical analysis of the second part and empirical analysis of the fourth part, the following conclusions were obtained, conclusion Ⅰ:the existence of asymmetric information in the market led to the production of information risk, non-informed traders are aware of their exposures to risk information, thus require higher stock returns to compensate its information risk. Thus, higher the asymmetric information market stocks is, higher the asset yields are. Conclusion Ⅱ:still maturing of the local financial market in China is needed. Systemic risk in China’s stock markets is Significant, the value of beta coefficient in Shanghai stock market is limited. Conclusion Ⅲ:some of our industry-leading enterprise are too big, they have exceeded the high performance range of economies of scale, and reached the part of decreasing returns to scale. Conclusion Ⅳ:The proportion of institutional investors in stock market is too small.According to the conclusions, this article talk about the applications of VPIN on the stock market. Both in the long term and short term, VPIN dramatically changes before stock prices grow, significantly out of its normal level, when stock prices stop falling, VPIN decreases rapidly return to its normal value, in line with the early warning indicators of sensitivity, testability, the principle of independence. Therefore market regulators could join VPIN in stock early warning mechanism. For stock investors, whether it is a long-term investment or short-term speculation, VPIN can be one of the criteria for selecting stocks. Finally, listed companies can take advantage of VPIN index reduces the cost of financing, adds shareholder value.For conclusion Ⅲ, this paper advocated transforming the method of pursuit of economies of scale by lifting a lever instead of blindly mergers and acquisitions. For other conclusions, the paper put forward policy recommendations on further deepening the reform of capital markets. Specifically,for conclusion I and II, imperfect capital market information disclosure system has caused severe information asymmetry and consequently lead to market equity issues, it is imperative to further improve the registration system. As for the conclusion IV, we should encourage the participation of social insurance funds, corporate pension investment to expand the institutional investors in capital market, and lead to investors participate in investment activity more rationally and then gradually develop the function of allocation of resources of capital market.