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1 – 10 of over 9000Mao He, Juncheng Huang and Hongquan Zhu
The purpose of our study is to explore the “idiosyncratic volatility puzzle” in Chinese stock market from the perspective of investors' heterogeneous beliefs. To delve into the…
Abstract
Purpose
The purpose of our study is to explore the “idiosyncratic volatility puzzle” in Chinese stock market from the perspective of investors' heterogeneous beliefs. To delve into the relationship between idiosyncratic volatility and investors' heterogeneous beliefs, and uncover the ability of heterogeneous beliefs, as well as to explain the “idiosyncratic volatility puzzle”, we construct our study as follows.
Design/methodology/approach
Our study adopts the unexpected trading volume as proxies of heterogeneity, the residual of Fama–French three-factor model as proxies of idiosyncratic volatility. Portfolio strategies and Fama–MacBeth regression are used to investigate the relationship between the two proxies and stock returns in Chinese A-share market.
Findings
Investors' heterogeneous beliefs, as an intermediary variable, are positively correlated with idiosyncratic volatility. Meanwhile, it could better demonstrate the negative correlation between the idiosyncratic volatility and future stock returns. It is one of the economic mechanisms linking idiosyncratic volatility to subsequent stock returns, which can account for 11.28% of the puzzle.
Originality/value
The findings indicate that idiosyncratic volatility is significantly and positively correlated with heterogeneous beliefs and that heterogeneous beliefs are effective intervening variables to explain the “idiosyncratic volatility puzzle”.
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Hajer Chenini and Anis Jarboui
Financial theory is based on the assumption of rationality of individuals. Defenders of behavioral finance recommend that the rationality hypothesis of efficiency theory is too…
Abstract
Purpose
Financial theory is based on the assumption of rationality of individuals. Defenders of behavioral finance recommend that the rationality hypothesis of efficiency theory is too narrow and irrelevant (Barberis and Thaler, 2002). The irrationality of the investor is reflected in his choice and his behaviour. However, his choice depends on the way the problem is formulated and described. The irrational investor does not think in terms of final wealth but rather in terms of gains and losses.
Design/methodology/approach
This research is interested in the methods of classification of the investors in homogeneous groups. In the study, the classification method used to group individual in the sample is the dynamic aggregation method. However, to identify the number of groups to use in this method, the authors also used the hierarchical method on a sub-sample. Thus, to this end the authors present a topological analysis to test the hypothesis of the heterogeneity of Tunisian investor groups in terms of belief.
Findings
The results suggest that the majority of investors are quite irrational. Therefore, the Tunisian investor considers itself irrational because of the presence of several anomalies in its behavior.
Originality/value
This research proposes to help identify the variables that are truly determining in the process of interpreting information. The authors wish to formulate recommendations for the use of information, in order to help professionals and investors in the orientation of the investment strategy. In particular, the authors attempt to indicate the variables to which attention should be paid. In addition, behavioral financial analysis is useful for investors. Thus, taking into account certain irrational phenomena is important to make a decision. In addition, it allows to better identify the investor's own shortcomings and to detect certain negative trends.
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The author in this paper identifies the gap between analytical and empirical studies regarding the relation between disclosure and cost of capital. Distinct from prior reviews…
Abstract
Purpose
The author in this paper identifies the gap between analytical and empirical studies regarding the relation between disclosure and cost of capital. Distinct from prior reviews, this paper focuses on the various assumptions of theoretical models and the insights and key results derived from those assumptions. The author also reviews how these theoretical papers are “applied” in empirical studies.
Design/methodology/approach
The author systematically analyzes both theoretical and empirical papers that investigate disclosure and cost of capital between 2000 and 2020.
Findings
The author shows (1) that there is ample room for theorists to move from the pure exchange economy to the production-based economy setting to investigate the real effect of disclosure on the cost of capital; (2) structural estimation, although still nascent, is a promising direction to build the bridge between analytical and empirical studies in disclosure and cost of capital, and (3) besides ordinary least squares (OLS) regressions, researchers are encouraged to think outside the box regarding how to investigate the interplay between disclosure and cost of capital via a Deep Neural Network design.
Originality/value
The author provides a unique perspective and synthesized knowledge in the relations of disclosure and cost of capital.
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Runmei Luo and Yong Ye
In this study, the authors argue that the private information obtained and transmitted by institutions during the corporate visits can alleviate the degree of information…
Abstract
Purpose
In this study, the authors argue that the private information obtained and transmitted by institutions during the corporate visits can alleviate the degree of information asymmetry between firms and investors, so institutional visits may influence investors' heterogeneous beliefs. Therefore, the authors investigated whether and how institutional investors' corporate visits affect investors' heterogeneous beliefs.
Design/methodology/approach
This study examines whether and how institutional investors' corporate visits affect investors' heterogeneous beliefs using the data of A-share companies from the Shenzhen Stock Exchange (SZSE) during 2013–2019. Using empirical research method, this study designs and conducts an empirical research according to empirical research's basic norms.
Findings
The authors find that institutional visits effectively decrease investors' heterogeneous beliefs, especially institutional investors. Meanwhile, institutional site visits and sell-side institutional visits have a more significant negative effect on investors' heterogeneous beliefs. The findings remain after robustness tests with the alternative variable, instrumental variable, propensity score matching and quantile regression methods.
Originality/value
The development of China's capital market is imperfect, resulting in a strong speculative atmosphere. So, investors' irrational investment behaviors occur from time to time, leading to sizeable heterogeneous beliefs in China's capital market, which increases the risk of investment and is not conducive to the discovery of corporate value and the efficient allocation of resources. Therefore, exploring the factors influencing heterogeneous beliefs and finding ways to alleviate heterogeneous beliefs can reduce the proportion of speculative investors and promote the healthy development of China's capital market.
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The purpose of this paper is to examine the impact of heterogeneous expectations on the equilibrium value of a risky asset in a capital market populated by investors that choose…
Abstract
Purpose
The purpose of this paper is to examine the impact of heterogeneous expectations on the equilibrium value of a risky asset in a capital market populated by investors that choose mean‐variance efficient portfolios.
Design/methodology/approach
A single‐period, discrete‐time version of Williams' capital asset pricing model that incorporates heterogeneous beliefs regarding the mean vector of rates of return and homogeneous beliefs regarding the variance‐covariance matrix of rates of return is developed. It is then employed to gauge the impact of both divergence of opinion and increases thereof on the equilibrium price of a risky asset.
Findings
The value of a risky asset under heterogeneous beliefs differs from that under homogeneous beliefs as the former is biased towards the beliefs of wealthier and/or more risk tolerant investors. If the latter set of investors is optimistic (pessimistic), the value is higher (lower) than that which prevails in the absence of divergence of beliefs. Increasing divergence of opinion likewise affects the equilibrium price of a risky asset to accord more with the beliefs of wealthier and/or more risk tolerant investors. If the latter set of investors is optimistic (pessimistic), increasing dispersion of beliefs causes the value of a risky asset to rise (fall).
Originality/value
A novel simplification and application of Williams' model of capital asset pricing is presented. The findings differ from conclusions derived in previous theoretical treatments of divergence of opinions in capital markets.
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Lu Qin and Hongquan Zhu
– The purpose of this paper is to identify the effective measures for heterogeneity and to uncover the relationship between investor heterogeneity and stock returns.
Abstract
Purpose
The purpose of this paper is to identify the effective measures for heterogeneity and to uncover the relationship between investor heterogeneity and stock returns.
Design/methodology/approach
The paper employs dispersion in analysts’ earnings forecasts and unexpected trading volume as proxies of heterogeneity. Portfolio strategies and Fama-Macbeth regression are used to uncover the relationship between the two proxies and stock returns in the Chinese A-share market.
Findings
The result indicates that stock returns are significantly related to unexpected trading volume, i.e., higher unexpected trading volume implies higher stock returns now but lower future stock returns. In contrast, there is no statistically significant relationship between analysts’ forecast dispersion and stock returns.
Originality/value
The findings suggest that unexplained trading volume is an effective measure for investor heterogeneity in the Chinese A-share market.
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Tiziana Assenza, Te Bao, Cars Hommes and Domenico Massaro
Expectations play a crucial role in finance, macroeconomics, monetary economics, and fiscal policy. In the last decade a rapidly increasing number of laboratory experiments have…
Abstract
Expectations play a crucial role in finance, macroeconomics, monetary economics, and fiscal policy. In the last decade a rapidly increasing number of laboratory experiments have been performed to study individual expectation formation, the interactions of individual forecasting rules, and the aggregate macro behavior they co-create. The aim of this article is to provide a comprehensive literature survey on laboratory experiments on expectations in macroeconomics and finance. In particular, we discuss the extent to which expectations are rational or may be described by simple forecasting heuristics, at the individual as well as the aggregate level.
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Previous literature shows that market sentiment and the steepness of index option's implied volatility slope have a negative relation. This paper investigates the relation between…
Abstract
Purpose
Previous literature shows that market sentiment and the steepness of index option's implied volatility slope have a negative relation. This paper investigates the relation between firm-specific sentiment and individual option's implied volatility slope both theoretically and empirically.
Design/methodology/approach
The authors develop a simple model with option traders' sentiment heterogeneity to show that sentiment and the steepness of individual option's implied volatility slope have a positive relation.
Findings
When firm-specific sentiment is higher (more bullish), individual option's implied volatility slope becomes steeper. The positive relation is stronger when option traders' beliefs on risk are more dispersed. Empirical results support the theoretical model predictions.
Originality/value
Although both firm-specific sentiment and individual options implied volatility slope predict future stock returns, there is no research exploring the relation between them. In particular, none of previous studies associates implied volatility slope's stock return predictability to investor behavior such as sentiment. The authors’ findings provide a behavior-based explanation on why steep implied volatility slope negatively predicts cross-sectional stock returns.
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Irina de la Flor, Maria Sarabia, Fernando Crecente and Maria Teresa del Val
This study seeks to enhance productivity, motivation and well-being of workers by improving decision-making processes. Using inner knowledge management (IKM), this study aims to…
Abstract
Purpose
This study seeks to enhance productivity, motivation and well-being of workers by improving decision-making processes. Using inner knowledge management (IKM), this study aims to identify, manage and transform unconscious beliefs and negative emotions that limit decision-making processes.
Design/methodology/approach
The methodology used is empirical research, analyzing multiple cases qualitatively and using the T-test statistical model to analyze the hypotheses. The study tests the relation between different limiting beliefs and negative emotions that influence decision-making processes.
Findings
This study shows that IKM is positively related to the productivity, motivation and well-being of workers.
Research limitations/implications
The study is limited to workers who are mentally healthy, who work in teams and who seek professional help to achieve their goals.
Practical implications
The results indicate that there is a lot of potential to be explored applying IKM in companies and organizations. Specifically, this study proves that there are several inner knowledge assets that constrain the workers’ potential and therefore affect the efficiency of businesses.
Social implications
The results have strong implications for how companies and organizations can create great value for themselves and their workers.
Originality/value
To the best of the authors’ knowledge, this is the first data-based study using an IKM model. The importance of this study opens the door to further exploration of the effects on IKM on productivity, motivation and the general well-being of workers.
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