Research On The Influence Of Growth Option On A-share Market Anomalies

The total value of a business can be decomposed into the sum of the value of the assets in place and the value of the growth option.Growth option gives enterprises the discretionary option in operation and management(such as strategic investment,expansion option,contraction option,merger and reorganization,etc.),which enables enterprises to exercise expansion option,improve profitability,and exercise decline protection right and reduce costs in adverse economic environment.The execution and creation of growth options are closely related to the strategic investment decision of enterprises.By changing the importance relative to existing assets,it has an important impact on the value and asset risk return characteristics of enterprises.Actively managed firms with embedded growth options have asymmetric and convex returns and may affect expected stock returns in this way,leading to some abnormal returns.Probability,the lottery and the "idiosyncratic volatility puzzle"are classic anomalies in financial markets.There are many theoretical explanations for them in recent years,but there is no uniformity.Some behavioral finance studies suggest that firms with a higher proportion of growth option assets have a lower exposure to risk.The return of future profitability is higher,leading to profitability,lottery and the "idiosyncratic volatility puzzle".Based on previous research,this paper examines the mechanism by which growth periods affect the relevant stock market anomalies(profitability,lottery and "idiosyncratic volatility puzzle").More financial studies have shown that growth options and real options are like options in general.The exercise is discretionary and the return is a convex function of the value of the underlying asset.There is asymmetry,which in turn affects stock returns through the channel of idiosyncratic skewness.This leads this paper to use idiosyncratic skewness as a novel measure of growth options.Referring to the overall idea of the Bali et al.(2020)article,this paper demonstrates that growth options reduce risk exposure by The paper first theoretically investigates how firm-level growth options generate return convexity and skewness based on the characteristics of the Chinese A-share market,thereby affecting stock market anomalies such as profitability,lottery,and "idiosyncratic volatility puzzle".The theoretical rationality of using expected idiosyncratic skewness as a measure of growth options is explained;Second,non-financial Ashare listed companies in China are selected as the research sample for the period from 2001-2020,and an empirical study is conducted.Cross-sectional regressions are conducted with idiosyncratic skewness as the explanatory variable and growth options,idiosyncratic skewness and other control variables that may affect idiosyncratic skewness as the explanatory variables.The regression coefficients of growth options on the explanatory variable idiosyncratic skewness are obtained,which in turn leads to the expected idiosyncratic skewness.Second,the impact of expected trait skewness on stock returns is tested empirically using Fama-MacBeth regression analysis.Again,the expected idiosyncratic skewness attributed to growth options is tested for its explanatory power on profitability,lottery effect,and the"idiosyncratic volatility puzzle" anomaly using ranked portfolio analysis and FamaFrench regression.The empirical results show that:(1)Growth options have a significant relationship with idiosyncratic skewness.(2)The expected idiosyncratic skewness factor driven by growth options has significant pricing power in the Chinese A-share stock market.(3)The expected idiosyncratic skewness driven by growth options reduces the alpha of profitability,lottery and the "idiosyncratic volatility puzzle"anomaly,and has some explanatory power.