Heterogeneous Beliefs And The Reverse Effect Of Chinese Stock Market

When the real economy develops to a certain extent,the stock market comes into being.There is a close relationship between the macro-economy and the stock market.The research on the relationship between the two is a focus of concern in the academic community.In addition,the traditional finance hypothesis of investors' homogenous beliefs has also been questioned due to the emergence of stock market anomalies such as “the IPO premium puzzle”,“post-earnings announcements drift”,“reversal effect”.The academic community began to explain multiple anomalies from the perspective of behavioral finance,focusing on the behavior of investors,and put forward the view that heterogeneous beliefs exist among investors.The retail investor market is a major feature of the Chinese stock market.That is,individual investors occupy the main body of the stock market.Due to the differences in education,social experience,and gender among investors,the heterogeneous beliefs of investors in the Chinese stock market are particularly prominent.Therefore,the purpose of this paper is to explore the influence of heterogeneous beliefs on the reversal effect of Chinese stock market and try to link the macro economy with the stock market.By constructing a heterogeneous belief index on the future growth trend of money supply to explain the reversal effect of Chinese stock market.This article discusses the relationship between the index of heterogeneous beliefs and the reversal effect from both theoretical and empirical perspectives.Theoretical analysis shows that money supply has a positive effect on stock returns,and then we put forward two assumptions based on this:(1)There is a positive correlation between the index of heterogeneous beliefs for the future growth trend of money supply and the overall trend of the stock market,it is equal to a positive correlation between the index of heterogeneous beliefs and the new Shanghai index;(2)The heterogeneous beliefs index for the future growth trend of money supply canexplain part of the reversal effect.In the empirical aspect,we testing the above two hypotheses.First of all,this paper uses Jedadeesh and Titman's method(1993)to construct winner combination and loser combination.Through an empirical analysis of the data of the Chinese A-share stock market from January 2006 to December 2016,the results show that the Chinese stock market has a mid-term reversal effect,that is a zero-cost portfolio with a holding period of 3 months,6 months,9 months,and 12 months exhibits reversal effect;and in the long-term,as holding period of 24 months,there is no significant reversal effect.Second,in view of the previous theoretical analysis,we construct an index of heterogeneous beliefs about the future growth trend of money supply,and correlate it with the new Shanghai Stock Index.The results show that there is a positive correlation between the two.When the heterogeneous beliefs of investors are quite different,the overall situation of the stock market is more optimistic.When the differences among investors' heterogeneous beliefs are small,the overall stock market situation is more pessimistic.Consistent with the above assumptions and theoretical reasoning.Finally,we perform the regression testing of the heterogeneity index,Fama-French three-factor and zero-cost portfolio over the excess returns without risk-free interest rate,the empirical results show that the heterogeneous belief index can explain part of the zero-cost portfolio of excess returns.It is clear that the heterogeneous beliefs of investors on the future growth trend of money supply are a factor that affects the reversal effect of the stock market.In general,this article uses an index of investors on the heterogeneous beliefs in macroeconomics to explain the reversal effect of the Chinese stock market.It is concluded that heterogeneous beliefs have a positive effect on the reversal effect,that is,the greater the heterogeneous beliefs among investors,the stronger the reversal effect.