China Stock Idiosyncratic Volatility Mechanism And Emperical Research Based On Investor Perspective

The relationship between risk and return has always been at the core of financial theory.Traditional financial theory believes that the factors affecting the equilibrium price of assets include only systemic risk,and the idiosyncratic volatility is not related to expected returns.However,recent studies have found that there is an anomaly in the stock market that idiosyncratic volatility is negatively correlated with expected returns,that is “the idiosyncratic volatility puzzle”.After the market anomaly of “the idiosyncratic volatility puzzle” was discovered,more research focused on the driving factors and mechanism of the anomaly.However,there is still no consensus on this.And existing factors have a weaker interpretation of idiosyncratic volatility puzzle.In an effective financial market,investors taking higher risks will obtain higher returns.And this high-risk-low-return anomaly precisely reflects the inefficiency of financial markets.In addition,compared with other financial markets in developed countries such as Europe and the United States,China's financial market has its unique characteristics: market friction is more serious,the structure of the financial market needs to be improved,the proportion of individual investors is high,and information asymmetry is more serious.Therefore,based on the basic status of the Chinese stock market,this paper studies the driving factors and the formation mechanism of idiosyncratic volatility puzzle.And by examining this anomaly,this paper expounds the nature of idiosyncratic volatility.The core of this article's research on idiosyncratic volatility is to analyze the relationship between the idiosyncratic volatility and the return and the mechanism formation.And also,the purpose is to explore and analyze the economic meaning of the idiosyncratic volatility in the current stage.This research is not only beneficial to the in-depth understanding of the risk-returns relationship,but also has important practical significance for enhancing the efficiency of China's financial markets and improving the ability of financial markets to serve the real economy.The specific content of this article is as follows:First,the paper examines the relationship between idiosyncratic volatility and returns in China's stock market.Build idiosyncratic volatility based on different models,test the relationship between idiosyncratic volatility and returns by portfolios.Then,using Fama-MacBeth regression and quantile regression by controlling other variables to further analyze the idiosyncratic volatility puzzle.The research results show that there is a negative relationship between idiosyncratic volatility and expected stock returns;that is,an increase in idiosyncratic volatility in the current period will cause a decline in expected returns.The quantile regression results show that at low quantiles,idiosyncratic volatility has a significant negative effect on expected stock returns.As the quantile increases,the degree of negative impact of idiosyncratic volatility on expected returns gradually decreases and even turns positive.This shows that the idiosyncratic volatility puzzle is more pronounced at low yields,and at high yield levels,the idiosyncratic risk assumed can be compensated for risk.In addition,through the role of the short selling mechanism in the idiosyncratic volatility puzzle,it is found that the opening of the short selling mechanism can effectively suppress the idiosyncratic volatility effect of Chinese stocks.Second,from the perspective of individual investor attention and analyst information intermediation,the idiosyncratic volatility puzzle of China's stock market is further explained.Get the Baidu index through the crawler technology,and use Baidu index to define individual investors' abnormal attention indicators.First,the portfolio test is performed on the impact of individual investor attention and analyst coverage on the idiosyncratic volatility puzzle.In addition,Fama-MacBeth regression and quantile regression are used to analyze individual investors.Finally,analyzing the explanatory power of individual investor attention for the idiosyncratic volatility puzzle.The research results show that the attention of individual investors due to the effect of mispricing has significantly enhanced the effect of idiosyncratic volatility,that is,with the increase of individual investors' attention,the greater the idiosyncratic volatility,the lower the expected returns.In addition,due to the production and dissemination of information,securities analysts can reduce the degree of asymmetry in market information,enhance the transparency of market information,and thereby reduce the degree of mispricing of stocks.Therefore,the increase in analyst coverage can suppress the effect of individual investors' attention on the idiosyncratic volatility puzzle.In addition,the individual investor attention factor can explain 70.6% of the idiosyncratic volatility puzzle,indicating that the investor attention can well explain the idiosyncratic volatility effect of Chinese stocks.In addition,the turnover rate can also better explain the idiosyncratic volatility puzzle,showing the role of heterogeneity in China's stock market.Third,further analyze the impact of media on the relationship between individual investor attention and the idiosyncratic volatility puzzle.Based on the characteristics of Chinese news media,this section distinguishes news media into policy-oriented media and market-oriented media.At the same time,distinguishing the types of media reports' sentiments,the paper further divides media reports into positive media reports and negative media reports.Carefully study the impact of different media types and different reporting sentiments on individual investor attention and idiosyncratic volatility effects.First,the role of Double-Track System of China's News Media and media sentiment on the relationship between individual investor attention and the idiosyncratic volatility puzzle is studied through portfolios.In addition,Fama-MacBeth regression and quantile regression are used to further analyze the impact of media on the relationship of individuals investor attention and the idiosyncratic volatility puzzle.The research results show that media reports have a significant inhibitory effect on idiosyncratic volatility effects.Compared with market-oriented media,policy-oriented media can better suppress the idiosyncratic volatility effects of individual investor attention.Moreover,compared with positive reports,negative reports from policy-oriented media can better suppress the effects of idiosyncratic volatility in the attention of individual investors at different levels.Fourth,on the basis of the above research,the economic meaning of idiosyncratic volatility is further analyzed.Constructing comprehensive mispricing indicator through different mispricing indicators,testing the relationship between mispricing and idiosyncratic volatility,and revealing the positive relationship between the degree of mispricing and idiosyncratic volatility.Then examining the intermediary effect of mispricing,the paper further reveals that individual investor attention will promote the idiosyncratic volatility of stocks through the intermediary effect of mispricing.Which supports the “noise-driven theory”.