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Efficiency of heterogeneity measures: an asset pricing perspective

Author

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  • Lu Qin
  • Hongquan Zhu

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.

Suggested Citation

  • Lu Qin & Hongquan Zhu, 2015. "Efficiency of heterogeneity measures: an asset pricing perspective," China Finance Review International, Emerald Group Publishing Limited, vol. 5(4), pages 371-385, November.
    • Handle: RePEc:eme:cfripp:v:5:y:2015:i:4:p:371-385
    DOI: 10.1108/CFRI-02-2015-0013
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    Citations

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    Cited by:

    1. Li, Yan & Liang, Chao & Huynh, Toan L.D. & He, Qiubei, 2022. "Price reversal and heterogeneous belief," International Review of Economics & Finance, Elsevier, vol. 82(C), pages 104-119.
    2. Hong, Jiawei & Yu, Xiaojian & Xiao, Weilin & Zhang, Xili, 2022. "The dispersion of beta estimates and the investors’ heterogeneous Beliefs：Evidence from the stock market in China," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 540-550.
    3. Yongsheng Yi & Feng Ma & Dengshi Huang & Yaojie Zhang, 2019. "Interest rate level and stock return predictability," Review of Financial Economics, John Wiley & Sons, vol. 37(4), pages 506-522, October.

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