The Research Of The Effect Of Low-priced Stocks In China's A-Share Market

The stock market is a barometer of the real economy.With the continuous maturity of capital market,the A-share market has grown into one of the important components of the global financial market.More and more investors also use the stocks in the A-share market as tool of asset allocation.In addition,the regulatory authorities are constantly emphasizing the importance of the A-share market to economic development.Because of the importance of the stock market for economic development,scholars from various countries have always given high attention to the stock market.Among them,the various visions in the stock market are one of the focuses of many scholars.Although domestic scholars have conducted extensive research on the many visions of the stock market,but one of them low-price effect rarely receives attention.In contrast,foreign research on the effect of low-priced stocks has been in existence for decades,and confirmed the existence of low-price stock effects in capital markets such as Europe and the United States.Price as a first-hand information obtained by investors is no longer considered as a “neutral”concept,but a factor that affects stock returns.Therefore,the low-price effect should receive more attention and research.This paper selects the A-share listed companies(reported ST shares,financial stocks and public utilities stocks)from 1998 to 2018 as a sample of the study.Using the year as the grouping frequency,the stocks are grouped according to the price using the univariate grouping method.After conducting a statistical test on each stock portfolio,a five-factor model is used to adjust the risk of each combination to see if the five-factor model can explain the low-price effect.Then it conducts a test of the robustness of the existence of the low-price stock effect and studies the characteristics of the low-price stock effect in different forms of the A-share market.Finally,this paper conjectures the causes of the low-price stock effect from the perspective of behavioral finance,including “nominal price illusion”,heterogeneous beliefs,investment psychology with small Broad and new individual investor preferences.From the test results,it is found that the low-price effect of China's A-share market does exist.The difference between the monthly average excess return ratio of the low-price stock portfolio and the high-priced stock portfolio is significantly positive,and after five-factor risk adjustment,There is still a positive premium for low-priced stocks portfolio relative to the high-priced stock portfolio,in other words,the five-factor model still does not fully explain the low-price stock effect.The results of the robustness test also show that the low-price effect of the A-share market is significant.The further test results of the A-share market show that the low-price stock effect has weakened to some extent after the implementation of the reform of the shareholder structure and the margin trading system.indicating that the implementation of the reform of the shareholder structure and the margin trading system have improved the market mechanism and increase the pricing efficiency of the market.The test results of in the bull market and the bear market show that the low-price stock effect is more obvious in the bull market,which is also consistent with the trend of the low-price stock index in the bull market.In response to the speculation of the "nominal price illusion" in the cause of the low-price effect,after the questionnaire survey,it was found that the low-priced stocks will give the investment the illusion that the securities are undervalued and the future growth space is greater.Finally,using the data of the newly registered individual investors of China Registration and Clearing Corporation,there was a positive relationship.Therefore,investors can use the new investors in the market as a reference indicator for investment when investing.In summary,it is considered that in theory,the research on the effect of low-priced stocks should be increased to guide the actual investment decisions.In terms of policy recommendations,we should futher improve the margin trading system in the A-share market to improve the pricing efficiency of the market.Second,we should increase the continuous education of investors to improve investors' investment knowledge and protect investor rights.