An Empirical Study On Long-term And Short-term Behavior Pricing Factors In Chinese Stock Market

Recently,Behavioral finance has become one of the hot subjects in finance.The hypothesis of "bounded rational" in behavioral finance is more realistic,which provides a new perspective for the study of asset pricing in finance,and also provides a reference for investors’ investment strategies,attracting a lot of attention from scholars and investors.Long-term and Short-term behavior pricing factor is a new research findings of behavioral finance applied to the study of pricing factors,which shows good pricing ability in the American stock market.Therefore,this paper will conduct an empirical study on the Long-term and Shortterm behavior factor in China’s A-share market.Long-term behavior factor based on issuance/repurchase activities resulting from firm’s total mispricing,but because of China’s A-share company repurchase activities is very few,between1997 and 2019,only 408 company have repurchase,a small amount of data is not enough to build Long-term behavior factor,so in this paper,the Long-term behavior factor will be improved.The long-term behavior factor is constructed by using the index of the change of share ratio of directors,supervisors and senior managers,it is management’s response to the stock mispricing.This paper studies whether the modified Long-term and Short-term behavior factors are applicable in the A-share markets,whether they can explain 15 market anomalies,and whether they can pass the Fama-Macbeth test of individual stocks.Through the competition with Fama five-factor model and Q four-factor model,the paper tests whether the Long-term and Short-term behavior pricing factors are more consistent with the actual situation of the stock market.Furthermore,this paper further discusses the relationship between Long-term and Short-term behavior factors and investor sentiment from theoretical and empirical perspectives.Also through the construction of Long-term and Short-term behavior cross-section factor,improve its pricing effect.The results show that Long-term and Short-term behavior factors can explain the Fama-French five factor and Q-four factor.Below the 10% confidence level,11 of the 15 market anomalies selected in this paper can be explained.The FamaMacbeth test showed that the Long-term behavior factor(FIN)still maintained significant and stable cross-sectional prediction ability after the addition of other pricing factors.In comparison with Fama-French five-factor model and Q fourfactor model,the Long-term and Short-term behavior factors show a wide explanatory effect,and have better results on the model’s maximum sharpe ratio,GRS test value,parsimony index and pricing efficiency index CPEI.It proves that in the empirical test of the sample,the Long-term and Short-term behavior pricing factor is more consistent with the actual description of the average market return.In the test of Long-term and Short-term behavior factors and investor sentiment,this paper proves that the long-term and short-term behavior factors can partially explain the mispricing caused by investor sentiment,but they cannot replace each other,and the Long-term and Short-term behavior factors contain other sources of market return than investor sentiment.Finally,the cross-sectional factor construction method do improve the pricing ability of Long-term and Short-term behavior factors,and it is found that the cross-sectional behavior factors can obtain better prediction effect when used in the cross-sectional pricing model,and the time-varying characteristics are better when used as the factor exposure in pricing model.All in all,this study shows that the Long-term and Short-term behavior factors have good applicability in A share market.