Research On The Risk Premium Of China's Stock Market Idiosyncratic Volatility

The issue of stock risk and return has been a hot topic in the field of finance.The influence of corporate idiosyncratic risk on stock returns has attracted the attention of more and more researchers.idiosyncratic volatility is an agency indicator of company-specific risk.The fully efficient market hypothesis believes that only systemic risks will affect stock returns,and corporate idiosyncratic risk can be structured to diversify the portfolio.However,due to factors such as information asymmetry,market frictions,and capital cost limitations in the market,it is difficult for investors to construct an effective investment portfolio to disperse the idiosyncratic volatility.Unidentifiable corporate idiosyncratic risks will affect stock returns to some extent.It is of great importance to strengthen the study of the variability risk premium.Based on the stock market of our country,this article takes the Shanghai and Shenzhen A-share listed companies as research samples,and carries out supplementary research on the risk premium of idiosyncratic volatility.Using the latest Fama-French five-factor model to calculate the volatility of individual stocks,we use the portfolio method and Fama-MecBeth cross-sectional regression method to analyze the relationship between the idiosyncratic volatility and the expected return rate in China's stock market,and from the investor's heterogeneous beliefs.The relationship between the two is explained in terms of investor preference.Introducing the idiosyncrati risk factor into the asset pricing model can help to deeply investigate the variability risk premium.This paper constructs the trait quality risk factor according to the trait-specific volatility,and introduces the Fama-French five-factor model to analyze whether the asset pricing model that increases the idiosyncrati risk factor can better explain the difference in stock cross-sectional yields.The research results show that there is a significant negative volatility risk premium in China's stock market,that is,the higher the idiosyncrati volatility,the lower the expected stock return.After controlling the exchange rate and the price spread,the negative correlation disappeared.This shows that the investor's heterogeneous beliefs and investor preferences can explain the mystery of the stock market volatility in China to some extent.The idiosyncrati risk factor has a certain predictive effect on the stock market.After the idiosyncrati risk factor is increased,the intercept value and the index test value of the asset pricing model become smaller,which indicates that the asset pricing model that increases the idiosyncrati risk factor enhances Fama-French to some extent.Five-factor model explanatory power.The research conclusions of this paper have certain theoretical and practical effects on interpreting the myth of the volatility of China's capital market and improving the pricing efficiency of the capital market.