Price Delay And Investor Recognition

One of the core topics in modern financial theories is the determination of asset price.Because traditional asset pricing models do not take people's subjective judgment,which is universal in the real world,into account,they cannot explain a lot of financial anomalies in stock market.As the rising of behavioral finance,more and more researchers began to take investor recognition into the framework of financial theories,which provided good explanations to asset pricing.In this paper,I analyze China's A-stock data from 2000 to 2007 by constructing the delay measures that reflect how fast asset price responds to information and proxies for investor recognition and corporate fundamentals through asset portfolio strategy and cross-section regression strategy.The results are as follows:To begin with,investor recognition factors absorb and dilute the corporate fundamentals factors' explanatory power to price delay.In the second place,investor recognition factors can well explain the difference between the returns of asset portfolios for different price delay.In the third place,firm size,book to market equity,and momentum cannot fully explain the returns' difference;in addition,changes in institutional ownership and number of A-share holders,turnover ratio,and the volatility of market excess returns add additional explanatory power.Moreover,for different industries,there is no obvious divergence of recognition;but for different ultimate dominators,the investors are inclined to hold optimistic perspective on the firms that are ultimately state-owned. Finally,because of insufficient in professional knowledge,limited accesses to information,lack of funds,many individual investors who are in inferior situations have recognition bias,which can be made use by illegal institutional investors,thus cause loss to individual investors.In sum,the government departments should carry out a series of measures to enhance the education of investor in order to upgrade their ability of anti-risk,and simultaneously,strengthen the legal system of our stock market.