Investor heterogeneity and the cross-sectional stock returns in China

Opie, Wei and Zhang, Hong Feng 2013, Investor heterogeneity and the cross-sectional stock returns in China, Pacific-Basin finance journal, vol. 25, pp. 1-20, doi: 10.1016/j.pacfin.2013.08.005.

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Title Investor heterogeneity and the cross-sectional stock returns in China
Author(s) Opie, WeiORCID iD for Opie, Wei
Zhang, Hong FengORCID iD for Zhang, Hong Feng
Journal name Pacific-Basin finance journal
Volume number 25
Start page 1
End page 20
Total pages 20
Publisher Elsevier
Place of publication Amsterdam, The Netherlands
Publication date 2013-11
ISSN 0927-538X
Keyword(s) short sale constraints
dispersion of opinion
Summary We examine the relationship between divergence of opinion and the cross-sectional stock returns in Chinese A share market where short-selling of stocks is prohibited by law. Using a proxy for divergence of opinion among the entire investor base, we document a positive relationship between divergent beliefs and future stock returns. This is in sharp contrast to Miller's (1977) prediction of a negative relationship between the two. The result is likely to be driven by the dominance of individual investors and their speculative trading behaviors in China. Miller's prediction is confirmed when divergence of opinion is measured using data on mutual fund holdings. Our results are robust to a number of common return predictors. We also find a significantly negative relationship between the fraction of tradable shares in listed Chinese companies and future stock returns. Increase in the fraction of tradable shares tends to reduce the predictability of stock returns using divergence of opinion.
Language eng
DOI 10.1016/j.pacfin.2013.08.005
Field of Research 150205 Investment and Risk Management
Socio Economic Objective 970115 Expanding Knowledge in Commerce, Management, Tourism and Services
HERDC Research category C1 Refereed article in a scholarly journal
HERDC collection year 2013
Copyright notice ©2013, Elsevier
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Document type: Journal Article
Collections: Faculty of Business and Law
School of Accounting, Economics and Finance
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