| dc.description.abstract | Abstract
Based on Longstaff and Wang(2008), We set a divergence-of-opinion function varies with stock dividend, and construct an asset pricing model incorporating the stock market and credit market. In our model, investors trades both stock and bond,thus forming the connecting mechanism across two markets. Our study suggests that when divergence-of-opinion is high, the stock price reflects only optimistic view,resulting in a decrease in discount factor and thus an increase in Price/Earnings ratio.For the Mean-reverting character of divergence-of-opinion between investors,
expected return would be lower at this moment. Our conclusion provides evidence for Miller(1977), yet is inconsistent with a view that divergence-of-opinion in the market proxies for risk. Meanwhile, the pessimistic investors would turn to the credit market,which spurs the bond demand and price, brings down the interest rate. Using TAIEX index from 2003.5.2 to 2013.4.8 as our selected sample, we conduct time series regression. This empirical test shows that divergence-of-opinion in the market is
positively related with Price/Earnings ratio significantly, and negatively related with one-year-period expected return, which is consistent with our theoretical prediction. | en_US |