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

Yudong Wang, Xundi Diao, Zhiyuan Pan and Chongfeng Wu

Pacific-Basin Finance Journal, 2019, vol. 55, issue C, 127-141

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.

Keywords: Belief dispersion; Trading terminals; Volatility forecasting; Predictive regression; Portfolio allocation (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:pacfin:v:55:y:2019:i:c:p:127-141

DOI: 10.1016/j.pacfin.2019.03.009

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