关键词: 广义失望厌恶；下行风险；横截面收益；Fama-MacBeth回归

Abstract: As an important factor driving systemic risk, downside risk has attracted increasing attention in recent years. It is acknowledged that investors especially retail investors, exhibit disappointment aversion risk preference which overweighs left-tail outcomes relative to right-tail outcomes. Given a high proportion of retail investors in Chinese stock market, delving into disappointment aversion could yield important implications for asset pricing and financial supervision. To this end, an empirical investigation into the pricing power of generalized disappoint aversion (henceforth GDA) in Chinese stock market is presented in this paper. By embedding GDA risk preference within the CCAPM framework, the GDA5 factor model including market factor, downstate factor, market downward factor, market volatility factor, and volatility downward factor is constructed. Using trading data of A-share listed firms in China from January 2006 to December 2020, the pricing ability of GDA5 model for individual stocks and asset portfolios is empirically tested. Additionally, the ability of GDA5 model in explaining pricing anomalies that documented in the literature is also formally examined. Finally, a series of robustness checks are conducted by changing the theoretical model derivation, key parameters and estimation window sizes. The results show that: (1) GDA5 factors are priced both at the level of individual stock and asset portfolio, where the downside risk, market volatility and downside volatility are the three most important pricing factors; (2) GDA5 model exhibits higher pricing ability during recessions, for non-cyclical stocks and stocks with lower equity concentration; (3) GDA5 model outperforms other classic pricing models in that GDA5 better explains cross-sectional stock returns for different portfolios, and asset pricing anomalies in Chinese stock market; (4) As a robustness check, the CGDA5 model based on consumption growth is constructed, and the results again confirm the pricing ability of downside risk in Chinese stock market. The proposed GDA5 factor model in this paper not only helps reveal the importance of disappoint aversion risk preference in explaining equity premiums and anomalies in Chinese stock market, but fills the gap in the literature as well as provides theoretical guidance for financial supervision.

Key words: generalized disappointment aversion; downside risks; cross-sectional returns; Fama-MacBeth regression