Research On The Left Tail Momentum Of China’s Stock Market From The Perspective Of Limited Attention And Limited Arbitrage

Risk has always been the focus of the state and institutions.In recent years,foreign scholars began to pay attention to the characteristic relationship between left tail risk and stock return.Atilgan,Bali,demirtas et al(2020)found that in the financial markets of the United States and international developed countries,there is a significant negative correlation between left tail risk and the future return of individual stock trading,and defined this phenomenon as left tail momentum.At present,there are very few domestic articles that systematically study the relationship between the two and explain it.Therefore,this paper tests whether there is such a left tail momentum phenomenon in China’s stock market,and studies whether there is some economically and statistically significant relationship between risk and future return.This sudden outbreak of COVID-19 is a great loss to extreme risks.Therefore,it is necessary to pay attention to the left tail momentum and explore the possible mechanism behind it for improving the efficiency of China’s financial market and preventing and resolving extreme risks.In order to study this phenomenon,referring to the practices of ATILGAN,Bali,demirtas et al(2020),this paper uses the value at risk under different quantiles as the proxy variable of left tail risk,based on the data of Shanghai and Shenzhen 300 component stock index from 2011 to 2021.In terms of research methods,grouping method and Fama Macbeth regression method are used to test the existence of left tail momentum in China’s stock market,and then the persistence of left tail momentum is tested by transfer probability matrix.Then,in view of the particularity of China’s stock market,this paper explains the left tail momentum phenomenon from the perspective of investors’ limited attention and limited arbitrage.The main conclusions of this paper are as follows:(1)the phenomenon of left tail momentum does exist in China’s stock market,that is,there is a negative correlation between left tail risk and stock cross-sectional return,and the result is still robust after replacing the left tail index.(2)The left tail momentum phenomenon in China’s stock market is highly persistent.Due to the limitations of individual investors themselves,they are easy to be attracted by distinct information and ignore the regular phenomenon in the long run.Therefore,the risk is underestimated.(3)Taking the institutional shareholding ratio as the proxy variable of limited attention,the results show that the higher the institutional shareholding ratio,the weaker the left tail momentum;The results show that the greater the arbitrage limit,the stronger the degree of left tail momentum.On this basis,this paper puts forward relevant policy suggestions.