Uncertainty And Stock Mispricing

Uncertainty is an important factor affecting the mispricing of financial markets.This paper examines the impact of uncertainty on stock mispricing based on China’s A-share market.This article will cut into two kinds of uncertainty aspects: policy uncertainty and local officials change.Policy uncertainty uses Baker et al.(2016)based on the index of news reports to extract the index during the sample period as the uncertainty of China’s economic policy,as one of the proxy variables.The local official change rate manually collected as a proxy variable for official changes,constitutes panel data for stepwise regression analysis.The basic empirical results and analysis show that the increase of policy uncertainty can significantly reduce the stock mispricing,and the change of local officials has a positive effect on stock mispricing.The sample is divided into upper and lower partial samples according to the mean of the official changes,we find that the impact of the local official changes is stronger in the stock premium period than the stock underpricing period.According to the positive and negative values of stock mispricing,the sample is divided into upper and lower partial samples.And we also find that the policy uncertainty reduces the negative effect of stock mispricing and the change of local officials increases the positive effect of stock mispricing.Both are stronger in the stock premium period than the stock underpricing period.After further considering heterogeneity,it is divided into state-owned enterprises,private enterprises and other enterprises according to the attributes of enterprises.The mispricing of state-owned enterprises’ stocks is the weakest due to policy uncertainty.The mispricing of private enterprise stocks is more affected by the change of local officials.According to the location of the enterprise,it is divided into the eastern region,the central region and the western region.The mispricing of stocks in the eastern region is more affected by policy uncertainty and changes in local officials.In order to better explain the impact of policy uncertainty and official changes on stock mispricing,and regional heterogeneity and heterogeneity of corporate ownership,this paper empirically demonstrates through full sample,upper and lower partial samples,and sub-regional and ownership systems.Policy uncertainty and local official changes are simultaneously negative,which has a negative effect on stock mispricing,and the negative effect is greater in the stock premium period than in stock underpricing,while the influence in state-owned enterprises and the eastern region is more prominent.This result is in control of Fama three factors,macroeconomic variables(such as GDP per capita,CPI,etc.),consistent with the basic empirical results.Finally,we used the China Economic Policy Uncertainty Index calculated by Huang and Luk(2018)to replace the Economic Policy Uncertainty index issued by Baker et al.(2016)and passed the robustness test.The policymakers and implementers can get inspired by these conclusions.And the investment manager can also get use of it to make investment decisions.