Efficiency of heterogeneity measures: an asset pricing perspective
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.
Keywords
Acknowledgements
The authors are grateful to two anonymous referees and the managing editor for their valuable comments, which have improved the quality of the paper. The authors acknowledge the financial support provided by the National Natural Science Foundation of China (Grant Nos 1171170, 71273040 and 71473206) and the Specialized Research Fund for the Doctoral Program of Higher Education (Grant No. 20120184110021).
Citation
Qin, L. and Zhu, H. (2015), "Efficiency of heterogeneity measures: an asset pricing perspective", China Finance Review International, Vol. 5 No. 4, pp. 371-385. https://doi.org/10.1108/CFRI-02-2015-0013
Publisher
:Emerald Group Publishing Limited
Copyright © 2015, Emerald Group Publishing Limited