The Research On The Effectiveness Of Salience Effect Factor In China A-Share Market

In recent years,more and more behavioral finance studies have proved that the irrational behavior of A-share investors can drive the common movement of stock returns.Salience theory is a new risk selection theory based on psychology.It shows the systematic instability of decision makers’ risk preference and explains the behavior that seriously violates the expected utility theory.It can explain the paradox that the previous risk decision theory can not explain.The salience theory assumes that the attention of decision makers is limited,and they make decisions based on the context.At the same time,because the decision makers’ attention focuses on the most salient income in the decision,this distorted attention distribution leads to the distortion of the stock price.Starting from the asset pricing model of convex salience theory,this paper constructs convex salience factors by using A-share market data,and tests the effectiveness of convex salience theory by exploring the phenomenon of convex salience factors.Based on the data of A-share market from January,2000 to December,2020,this paper constructs the convex salient factor,and tests the anomaly of the convex salient factor by using the grouping sorting time series test and Fama Macbeth cross-sectional regression.The results show that:(1)the A-share market has a convex salient factor anomaly,and the salient factor can significantly negatively predict the future stock return;(2)The anomalies of saliency factors mainly exist in companies with small market capitalization;(3)Margin trading can significantly reduce the salient factor anomalies;(4)The phenomenon of the salient factor in the period of high investor sentiment is not significantly stronger than that in the period of low investor sentiment.This paper proves the effectiveness of the saliency theory from the empirical evidence of China’s A-share market.Due to the distortion of the saliency thinking,the saliency factor is negatively correlated with the future expected return of the stock.This paper reveals the reasons that may cause the ups and downs of the A-share market from the perspective of behavioral finance,which helps investors realize their own irrational behavior and has certain significance for investment practice.In addition,this paper also provides empirical evidence for understanding the stock market pricing mechanism and improving the stock market mechanism.