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Heterogeneous beliefs and aggregate market volatility revisited: New evidence from China

Author

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  • Wang, Yudong
  • Diao, Xundi
  • Pan, Zhiyuan
  • Wu, Chongfeng

Abstract

This paper proposes a new measure of belief dispersion for the Chinese stock market based on the closing price data from mobile and PC trading terminals. Our results show that our belief dispersion measure has significant predictive content for aggregate market volatility both in-sample and out-of-sample. The volatility predictability is robust to different realized volatility measures, forecasting horizons, and benchmark models. Our belief dispersion measure also helps improve the density prediction. Overall, we find that investors with mean-variance preferences who use belief dispersion information to generate volatility forecasts can improve their portfolio performance over longer horizons.

Suggested Citation

  • Wang, Yudong & Diao, Xundi & Pan, Zhiyuan & Wu, Chongfeng, 2019. "Heterogeneous beliefs and aggregate market volatility revisited: New evidence from China," Pacific-Basin Finance Journal, Elsevier, vol. 55(C), pages 127-141.
    • Handle: RePEc:eee:pacfin:v:55:y:2019:i:c:p:127-141
    DOI: 10.1016/j.pacfin.2019.03.009
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    Citations

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    Cited by:

    1. Ding, Hui & Huang, Yisu & Wang, Jiqian, 2023. "Have the predictability of oil changed during the COVID-19 pandemic: Evidence from international stock markets," International Review of Financial Analysis, Elsevier, vol. 87(C).
    2. Zhao, Mengyang & Zhang, Lingxiao, 2023. "Foreign ownership, heterogeneous beliefs, and stock market volatility," Finance Research Letters, Elsevier, vol. 55(PA).
    3. Liu, Jing & He, Qiubei & Li, Yan & Huynh, Luu Duc Toan & Liang, Chao, 2023. "The change in stock-selection risk and stock market returns," International Review of Financial Analysis, Elsevier, vol. 85(C).
    4. Li, Yan & Liang, Chao & Huynh, Toan Luu Duc, 2022. "Forecasting US stock market returns by the aggressive stock-selection opportunity," Finance Research Letters, Elsevier, vol. 50(C).
    5. Bai, Fan & Zhang, Yaqi & Chen, Zhonglu & Li, Yan, 2023. "The volatility of daily tug-of-war intensity and stock market returns," Finance Research Letters, Elsevier, vol. 55(PA).
    6. Li, Zhuolei & Diao, Xundi & Wu, Chongfeng, 2022. "The influence of mobile trading on return dispersion and herding behavior," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).

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