The Impact Of Investor Sentiment On Return Predictability Of Disagreement

The traditional Capital Asset Pricing Model argues that the price of the asset is determined by the risk which investors take,and assumes that the investors have homogeneous beliefs which means different investors have a consistent view of the future price of asset and the future market.However,in the real stock market,it is difficult to satisfy the hypothesis that the investors have homogeneous beliefs.The real stock market is not completely effective,which makes the information received by investors very asymmetric.And the educational background,income,and experience among investors are different,so the decisions are easily affected by cognitive bias.This results that investors have different opinions on the trend of the future stock market.In the academic field,we call this difference as heterogeneous beliefs,also known as disagreement.It exists trading precisely because investors have different opinions on the trend of the future assets.Miller(1977),for the first time,combined short-selling constraints and disagreement,pointed out that divergence of opinion would result in lower future earnings due to short-selling restrictions.As a new capital market,there are more serious short-selling restrictions in the stock market of our country.And compared with mature foreign capital markets,the proportion of individual investors in our market is much higher.In the third quarter of 2015,in China's stock market,the proportion of individual investors is higher than 99%,the market value of individual investors is 7 times as much as institutional investors.Individual investors are always speculated,more frequent trading and lack of rational.So it can be seen that investor disagreement is more serious in the market of our country,which makes a significance meaning to research the relationship between investor disagreement and the future earnings of our stock market.In addition,there is a serious phenomenon of sharp rise and fall in our stock market.In the year of 2007 and 2015,the Shanghai index rose rapidly,but fell sharply within a year.The market influences the investor sentiment,at the same time,the changes of investor's sentiment promote the rise and fall of the market.In China,there is a larger proportion of individual investors in the stock market,where investor sentiment will not only affect the future stock market returns,but also cause a lot of market "Vision".It is reasonable and necessary to take investor sentiment into account in this study.In the background of China's stock market,this paper researches the relationship between disagreement among investors and future stock market returns of A-share market,and explores how different investor sentiment levels can affect the relationship between these two factors.In this paper,we use the monthly data of China's A-share market and our sample is from January 2005 to July 2015.The forecasting divergence of the EPS in the future t + 1 year by analyst and abnormal trading volume are taken as the proxy variables of disagreement.The abnormal trading volume is defined as the ratio of the trading volume of the current month to it of previous month.The paper uses the method of principal component analysis to construct the comprehensive investor sentiment index according to the literature of Zhigao Yi(2009),and calculates the conditional variance of the market by RW model,GARCH(1,1)model and EGARCH(1,1)model to control the market risk.It uses the OLS regression model to explore the impact of investor disagreement on future stock market returns,and incorporates investor sentiment into the model in the form of dummy variable to discuss how the return predictability of disagreement changes under different sentiment levels.Through the research of this paper,we get these conclusions:(1)In the whole sample range,there is no significant correlation between the disagreement among investors and the future stock market returns;(2)When the overall sample period is divided into two groups according to the level of investor sentiment,we find that during the period of low sentiment,investors' opinion divergence was significantly positive correlated with the future returns of the stock market.But during the period of high sentiment,investors' opinion divergence was significantly negatively correlated with the future returns of the stock market.(3)When the investor sentiment dummy variable is included in the model to observe the specific impact mechanism of investor sentiment,we can find that in the period of low sentiment,the relationship of disagreement and the future stock market returns is positive,the rise of investor sentiment will weak the correlation between disagreement and future stock market returns,in the period of high sentiment,this kind of relationship no longer exists or even weakened to negative correlation.This paper combines investor disagreement with investor sentiment,which enriches the achievements of domestic and foreign researches.At the same time,scholars often use the cross-section data to research the disagreement among investors.In this paper,we use time-series data,which is different from the previous researches.And we use the "bottom-up" approach to construct the overall disagreement of the market,considering the changes of disagreement and investor sentiment in the time level.This paper contributes to the domestic literature and foreign literature,which has academic value.Our findings also provide some evidence for investors about how to choose the time of entering or leaving the stock market,and how to choose the stock which can bring extraneous earnings.This paper is important in both academic and practical areas,which has practical significance.