Study On The Effect Of Private Information On Stock Returns

We mainly study the impact of private information in the stock market on stock returns, with both theoretical analysis and empirical research to prove our expectations hypothesis, and finally we conclude that private information in the stock market in our country has a positive impact on stock returns. Also we find that this effect is especially obvious after the financial crisis.With the development of economy, many changes, both in the real economy and financial markets, have taken place in the investor’s investment environment and investment mode. Stock market is an important part of financial markets, so the yield of the stock market and risk assessment become particularly important. The price of assets and earnings are affected by many aspects. The estimate of the stock yield prediction also needs the stock itself and the whole market environment. Sharp (1964)(Capital asset pricing model, CAPM) believe that stock returns and risk of the whole stock market system only have linear relationship. However, Banz’s paper (1981) found that in addition to the systematic risk, stock returns are related to its market value. Fama and French found this theory can’t explain the differences between the stock returns, and the stock market premium factors (MKT), the size of the stock (SMB) and value factors (HML) can explain the differences between the stock returns. Their paper in1993constructed the three factor model to explain the change of stock returns. But, they all ignore the information asymmetry’s impact on stock returns and pricing. And in this regard, the degree of marketization of financial market in China is relatively low, so the information asymmetry of the impact of stock prices and yields is more prominent and important. However, there are many kinds of information asymmetry in stock market, such as insider trading, policy information, etc. This paper mainly focused on the private information.The main innovation of this article is to provide a more comprehensive approach to study the private information’s influence on the expected rate of return of stock market. So this article uses the expected rate of return and the relevant variables to create a new variable that can be applied to theoretical analysis and empirical analysis. We’ll use theoretical knowledge and technology to produce a variable that can measure the effect of private information on stock returns; Secondly, this article is set up with multiple variable parameters, such as the stability of the supply of assets, the accuracy of the information, and so on. We mainly consider two factors when calculating the substitution variables:the investor’s own expectations of a single stock prices and the relationship between the individual stocks and other related stocks; the third major contribution is that we study the equilibrium model under the framework of more than one asset. For a given stock, its price reflects the many investors’ expectations of future earnings and other relevant information. That is to say, according to the different correlation of the market, investors can through other stock information about future earnings to determine the benefits for investing in stocks. We also study of the reliance of the market clearing through the empirical analysis result. This article reflects the personal information influence on stock returns, and stock prices reflect market information and private information gained by the investors, the combined effect of the formation of the true value of the stock, which is the main basis of investors judge the stock investment value, then we can reflect the role of market clearing for investors. At the same time, we have some problems, such as this article does not consider the correlation between variables, so may not return result of accuracy.We have four parts in the paper. The first part mainly illustrates the research background and significance of this article, as well as the innovation and deficiency of this article; the second part is the theoretical basis. In this section we will focus on our new variable parameters, as well as the theoretical source and foundation of the new variable; the third part is the empirical research results; the last part is mainly summarizes the research conclusion of this paper and some policy suggestions.