Research Of Heterogeneous Beliefs’ Effect On Asset Prices

With the development of financial markets, the traditional financial asset pricingtheory, which was based on hypotheses of the efficient market and the rationaleconomic man, has been challenged by more and more financial anomalies. It wasdifficult to explain all of them by the traditional capital asset pricing theory and themodern portfolio theory with strict assumptions. In order to get better explains to theseanomalies, scholars began to relax some assumptions of traditional theoretical modelsfor correction to enhance models’ explanatory power. There is a lack of sufficientdomestic related empirical study due to the difficulty of heterogeneous beliefsappropriate measure selection and data availability. Since the1950s, models ofheterogeneous beliefs on asset pricing based on the psychology have developed rapidlywith fruitful researches. However, due to the presence of a huge number of individualinvestors, heterogeneous beliefs problem is very prominent in Chinese securities market.So the research of heterogeneous beliefs’ effect on asset prices in Chinese securitiesmarket is theoretically and practically significant.In view of existing theoretical analyses and empirical studies and characteristics ofChinese securities market, we select a suitable variable for investors’ heterogeneousbeliefs to test the impact of investor heterogeneous beliefs on IPO underpricing with thedata from Chinese securities market since the finished IPO system reform in2009.Firstly, we analyzed the formation mechanism of investor heterogeneous beliefs toreveal the heterogeneous beliefs’ role in asset pricing through the derivation of HAMmodel, and then we proposed theoretical assumptions. Then, we selected DISP and therate of shares purchase as measure variables of investors’ heterogeneous beliefs to testthe effect of heterogeneous beliefs on IPO underpricing. It’s concluded that there areseveral resources of heterogeneous beliefs and there is a positive effect between investorbeliefs’ heterogeneity and IPO underpricing. And the greater the degree of investors’heterogeneous beliefs, the greater the overvalued extent of current stock price is.