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Efficiency of heterogeneity measures: an asset pricing perspective

Efficiency of heterogeneity measures: an asset pricing perspective 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. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png China Finance Review International Emerald Publishing

Efficiency of heterogeneity measures: an asset pricing perspective

China Finance Review International , Volume 5 (4): 15 – Nov 16, 2015

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Publisher
Emerald Publishing
Copyright
Copyright © Emerald Group Publishing Limited
ISSN
2044-1398
DOI
10.1108/CFRI-02-2015-0013
Publisher site
See Article on Publisher Site

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.

Journal

China Finance Review InternationalEmerald Publishing

Published: Nov 16, 2015

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