The Impact Of Heterogeneous Beliefs On Stock Returns

Based on the two branches of behavioral finance theory,this paper questions the"rational man" and the "efficient market theory",adheres to the idea proposed by Miller(1977)to truly depict the real thoughts and actual behaviors of investors in financial markets,and explains the impact of heterogeneous beliefs on the stock returns of GEM from the perspective of irrational factors.This paper introduces investors’ heterogeneous belief and introduces the index method to measure heterogeneous belief.Considering the actual situation of chinext market,this paper selects the monthly average turnover rate and idiosyncratic volatility to measure the level of heterogeneous belief,and conducts an empirical study on the stocks on chinext market from 2012 to 2022.This paper uses asset portfolio analysis,bivariate grouping analysis,cross section regression analysis and other methods to study the impact of investors’heterogeneous beliefs on stock returns in GEM.Firstly,a univariate long-short portfolio is constructed to analyze the impact of heterogeneous beliefs on stock returns.Secondly,a bivariate long-short portfolio is constructed to explore the impact of heterogeneous beliefs on stock returns when heterogeneous beliefs change.Then the cross-sectional regression analysis of GEM stock returns is carried out by adding factors such as liquidity restriction.Finally,combined with the characteristics of the GEM market itself,this paper studies whether heterogeneous beliefs have different influences on stock returns under the restriction of short selling,in different periods of bull and bear markets,and before and after the reform of the limit on the rise and fall range of the GEM.It is found that there is a significant negative correlation between investors’heterogeneous beliefs and future stock returns,that is,the more serious the disagreement of investors in the current period,the higher the overvaluation of stock prices in the current period,and the lower the stock returns in the next period.This conclusion holds even after controlling for market risk,company size and book-to-market ratio.Combined with the characteristics of the GEM market and its institutional reform,the study found that investors’ heterogeneous beliefs have different influence on stock returns under the condition of short selling constraint,under the condition of different market conditions of bulls and bears,and before and after the reform of GEM’s range limit.The negative correlation between investors’ heterogeneous beliefs and stock returns is more significant under the short-selling constraint.Investors’ heterogeneous beliefs are more powerful in bear markets than in bull markets.Compared with before the reform,investors’ heterogeneous beliefs had a greater influence after the reform,and the reform did not increase market effectiveness.