Disappointment Aversion Model And Its Application In China's Stock Market

The traditional asset pricing models generally assume investors as completely rational individuals.However,in reality,investors' behavior will be affected by psychological factors and the surrounding environment.Therefore,the traditional asset pricing model does not describe the real situation.Especially in the Chinese stock market,the proportion of small and medium-sized investors is large,and the irrational behavior of investors dominates the stock market,which leads to the weaker price discovery function of the traditional asset pricing model.Therefore,exploring the pricing model suitable for Chinese stock market is of great significance for accurate asset pricing,improving market efficiency,and maintaining stable market development.Compared with the traditional asset pricing model,the breakthrough of the behavioral financial asset pricing model from rational to irrational is widely recognized.The ?disappointment aversion model? introduces the investor's asymmetric preference to construct the pricing kernel.?Disappointment aversion? means that if the investor's economic behavior produces a result lower than his expectation,the investor will have a feeling of disappointment.And this disappointment is what investors are not willing to bear.The model has strong explanatory power in the US stock market,but there are relatively few studies on this model in the Chinese stock market.This paper firstly analyzes the frontier literature of the disappointment aversion model,and further explores its applicability in the Chinese stock market.This paper introduces the consumer-based disappointment aversion model built by Delikouras(2017)for the first time to study the Chinese stock market.In order to make the assumptions of the model in line with Chinese stock market,this paper improves the assumption of the second-order coefficient of investor's intertemporal substitution elasticity and utility function in this model.The sample includes all SSE A-shares from December 2008 to December 2017.The national consumption data was used to calculate the monthly growth rate of investors' personal consumption,and the generalized moment estimation method was used to find the key parameters in the disappointment aversion model.By analyzing the ability of the disappointment aversion model to predict the yield and volatility of Chinese stock market,this paper finds that: First,investors in the Chinese stock market are hitting losses about six times in the normal period when they suffer losses in the disappointing event;The improved disappointment aversion model performance better than Fama-French five factor model;Third,the disappointment aversion model has good predictive power for Chinese stock market volatility.The findings of this paper contribute to the development of China's asset pricing research,provide reference for policy formulation of relevant departments,and have important theoretical and economic significance.