The Empirical Research Of Monetary Liquidity And Intrinsic Value Model

In morden world, economic activities are more and more vibrant. The power of capital and wealth can build the rise of nations or the collapse of societies. Asset price determines the amount of wealth and flows of capital over the world. If asset price is accurate or moderately conservative, economy system can gain sound development. If not, the bubble followed by asset price collapse can drag the society into nightmare of economic depression and instability. Asset price is decisive in many aspects of morden world. It is the reason of so large amount of businessmen, policy makers and schlors have paid close attention to asset pricing and keep doing so. It is why morden finance studies focus on asset pricing. For many decades, researches on asset pricing never suspend. But even so, sub-prime crisis in the United States could not be stopped to spread to financial markets and finally evolved into economic crisis. The crises set economists from multiple nations keep researching asset pricing puzzles. Re-examing the models and investigating the conditions to make them effective or fail are very important.How about the applicability and efficiency of existing asset pricing model under different conditions? By what factors is the asset pricing model efficiency affected? What is the influence mechanism? Whether the declines of asset pricing model efficiency means non-rational emotions of investors dominate the stock market? Attempting to answer these questions could contribute to controlling matket volatility, developing the economy, valuing and f inancing in capital market. Our research can be divided into several parts:First, we examine the efficiencies of Ohlson(1995) model and Zhang(2000) model in China’s capital market by using the data from 1999 to 2013. The empirical results show that, the residual income and the book value has value relevance, and can provide incremental information significant ly. For the assets of corporations listed in the main board and growth enterprise market(GEM) have large differences, Ohlson(1995) model can recognize the differences effectively in valuing. However, the overall explanatory power of Ohlson(1995) model is lower than the traditional EPS~ BPS model. In addition, Ohlson(1995) model can effectively reflect part of typical risk contained frequently in models in current research. The empirically test of the Zhang(2000) model shows that pricing factor in Zhang(2000) model also has significant value relevance, and have incremental information content mutually, and to a certain extent, the differences between main board and GEM companies. Most of the time frow 1999 to 2013, Zhang(2000) model’s explanation power degree was higher than that of Ohlson(1995) model and EPS~BPS model, It shows that the information content of earnings per share was signif icantly larger than that of residual income. On the other hand, it also shows that there is less new information contained in the GROWT H factor, which suggests that changes in information content of other factors related to the company’s future return can not be used to explain the volatility of explanatory power of Ohlson(1995) model.Second, this paper focuses on the relation among the monetary liquidity, Ohlson(1995) model and Zhang(2000) model. This part of the empirical results show that in 1999-2013, monetary liquidity and Ohlson(1995) model explanatory power are negative cointegrated. This means that when other factors remain unchanged and the Monetary liquidity lowered, efficiency of Ohlson(1995) model will be related higher, on the other hand, the easing of monetary liquidity will make Ohlson(1995) model’s pricing efficiency declined. The corresponding inspection of Zhang(2000) model shows that there is the same cointegration between Zhang(2000) model explanatory power and monetary liquidity variables. The corresponding conclusion with two models can be confirmed. Besides, the association models’ explanatory power and the money M0 has the strongest signif icant, compared with M1 and M2. At the same time, combining this empirical result with the fact that the GROWTH variables contains few new information, we can know that when the monetary liquidity increased, while information content of EPS, BPS, RI all decreased, factors related to the future return did not become more value relevant significantly. It indicates that the reduction of the efficiency of Ohlson(1995) model and Zhang(2000) model is likely to accompany with more noise in capital market. That leads our research to the next part.In the third part, we directly discuss the relationship between monetary liquidity and noise trading, and to further explore the conduction mechanism of this effect since the establishment of Chinese capital market. In theory, the change of monetary liquidity leads to change of capital market risk premium, thus resulting in a wid ely shift of asset price on one hand, and on the other hand, the tendency of asset price delivered clear and strong signal to the momentum traders, and then trigger positive feedback stratigies, making the asset price overreact to the change of monetary liquidity and deviate from its intrinsic value more, causing VRT indicators significantly reduced. The empirical results show that the seasonal Monetary liquidity variables, especially the ones basing on M0, are negative correlated to VRT significantly. The correlations remain significant by controlling earning yield the systematic risk over the market, but the significance level declines, which is consistent with theoretical expectations. Moreover, we investigate the distinction between the information effect and noise effect caused by monetary liquidity on asset pricing, and find out that the latter effect plays the most important role.