Research On The Influence Of Heterogeneous Beliefs On Momentum Effect Under Short-selling Mechanism

Weak Form of Efficient Market Hypothesis asserts that the current securities prices have covered all the historical i nformation,investors can obtain excess compensation based on stock historical data.The momentum effect is an observed tendency that stocks with strong past performance continue to outperform stocks with poor past performance in the next period.It is an important financial anomaly that challenges the effective-market hypothesis which is based on homogeneous belief.The heterogeneous belief of investors affects people's investment decisions and ultimately has an impact on the market.From the perspective of heterogeneous beliefs,researches on asset pricing theory are mostly under the condition of short-selling constraint.The Chinese A-stock market has experienced the process from under the strict short-selling constraint to the gradual concellation of short-sale constraint on some relatively stable stock.We can compare the different effects of heterogeneous beliefs on the momentum effect in different policy environments,so that the influence of heterogeneous beliefs on the momentum effect can be understood more profoundly.This paper analyzes the relationship between heterogeneous beliefs and momentum effects in Chinese stock market from both theoretical and empirical perspectives.It is concluded that there is less momentum effect in Chinese stock market,and it is deduced that the reversal effect is more likely to be formed under the conditions of short selling by introducing the index of heterogeneous belief on the basis of the theory of Hong and Stein.Under the condition of short-selling constraint,the greater the heterogeneity of investors,the less the momentum effect.To test this effect of the Chinese stock market,this paper test the income of the zero-cost portfolio using the Jegadeesh method for a period of 1 to 10 days from September 1,2005 to December 31,2016.It is found that there is a momentum effect in the short term(1-3 days),and a significant reversal effect in the other period(3 days or more).Secondly,in view of the fact that investors' heterogeneous beliefs are more obvious in Ch ina's stock market,this paper chooses the processed turnover rate as the proxy index of heterogeneous belief through literature research and comparison,and uses two-dimensional grouping method to study whether different heterogeneous beliefs will have an impact on the momentum effect.Empirical evidence shows that lower heterogeneous beliefs will generate a higher momentum effect,higher heterogeneous beliefs of the stock will produce a higher reversal of income.Finally,this paper examines by horizontal and vertical dimensions whether the heterogeneous beliefs have different impacts on the momentum effect under different short selling conditions.Empirical evidence s show that under the short selling limit,heterogeneous beliefs influence the reversal effect more,and after the Chinese market allows short selling,the market efficiency has improved.In this way,we can conclude the influence of heterogeneous belief on momentum effect under short selling mechanism.