Tone Of The Stock Name’s Last Word On The Impact Of Stock Returns

Standard finance assumes that the investors are completely rational, but behavioral finance argues that people are not completely rational. Decision-making will be subject to the influence of various factors, people is limited rationality. This hypothesis is more realistic, and explains the financial anomalies of the financial markets that standard finance theory can not explain.With rapid economic development, China’s securities market is rapid development and growth. As of late2011, has become Asia’s largest emerging market, and the number of investors ranks first in the world, securities account number is close to165million, including about0.7million of institutional investors and164million individual investors, individual investors account for about99.6%. Individual investors belong to vulnerable groups about information, the lack of rational investment behavior. So it should pay more attention to their irrational behavior. This paper studies the degree of difficult of stock name tone’s pronunciation influence the stock return, trying to verify the tone’s pronunciation difficulty level can affect the investment decisions of investors.In this study, the sample we have chosen are stocks which were initial public offering from2005to2010.The sample are classified by the tone, and each group are analyzed and compared through the average price-earnings ratio and the cumulative abnormal returns (CAR). Then establish the price-earnings ratio regression model and cross-section returns regression model, and make an empirical analysis. The results are as follows:First, the results verify the tone’s pronunciation difficulty level can affect the investment decisions of investors. Second, in the first day of listing and the subsequent12months, the easy group’s relative price is higher than the difficulty’s. Finally, in the first day of listing, the easy group’s return is higher than the difficult, but in the following12months, the easy group falls continuously, and the difficult group relatively rises, so the difference becomes larger. In other words, the easier tone’s pronunciation cannot increase the stock returns except the first day of listing.The results of this study have more important theoretical and practical meaning to the investors understand their bias, more rationally invest, and the market management agencies can do more effective financial regulation and supervision.