First, financial uncertainty
(A) the uncertainty of the application field of asset pricing
1. Portfolio Theory and Capital Asset Pricing Model
In the framework of financial analysis, introducing the concept of uncertainty is a major role. First of all, Kenes (1936) and Hicks (1939) put forward the concept of risk compensation, thinking that financial products should compensate additional risks in different interest rates of financial products in the presence of uncertainty. Subsequently, von Neumann (1947) applied the concept of expected utility to propose a method to solve the problem of decision-making under uncertainty. On this basis, Markowitz (1952) developed a portfolio theory. He believed that investors only cared about the mean and variance of future cash flows when choosing a portfolio. He assumes that the expected utility of investors conforms to quadratic distribution or polynomial distribution. Markowiz's main conclusion is that the optimal decision is diversified investment holding due to the influence of uncertainty. Tobin (1958) thinks that investors' liquidity preference is the balance of different choices of their own income and risk. This further improves the framework of portfolio selection theory.
Another famous theory in the field of asset pricing model is Capital Pricing Model (CAPM). Sharp (1994) and lintner (1995) use formulas to concisely express the relationship between portfolio value, risk-free interest rate and asset risk level. The Sharp and CAPM formulas introduced by Black (1972) are still valid even in the risk-free asset zone, but in the case of no risk, the interest rate includes the yield of all asset portfolios in the whole market instead of the expected yield. The asset pricing models suitable for CAPM model include the arbitrage pricing model (APT) of Ross (1977) and the typical agent asset pricing model of Lucas (1978).
The asset pricing model, represented by CAPM, provides a simple calculation method for asset pricing, and has gained some support from empirical research (Fama and Macbeth, 1973), but it still lacks effective explanatory power for some abnormal phenomena in reality. Brennan (1989) thinks that CAPM is based on the common estimation and judgment of all investors' expectations and risks in investment, and all investors are based on the assumption of the same utility function. This assumption is inconsistent with reality, which is the root cause of some practical problems, and CAPM lacks explanatory power to these problems. It is based on these unquestionable assumptions that the introduction and research of the concept of information asymmetry are promoted.
2. Market efficiency hypothesis
The market efficiency hypothesis holds that in a perfectly competitive market, there is no information asymmetry and market friction, and the average investment risk affecting future returns is different. In 1960s, a large number of researchers tested the market efficiency hypothesis. Fama (1973) held that the efficient market hypothesis was valid through the empirical test of American stock market, but many researchers found that there were many abnormal phenomena in the market that could not be explained by the market efficiency hypothesis or CAPM model. For example, Basu (1977) found that the average return of assets is not only related to the β coefficient of CAPM, but also related to the β coefficient of the P/E ratio of assets. Similarly, stocks with higher P/E ratio (growth stocks) are better than those with lower market price (value stocks); Mercedes-Benz (198 1) found that the market price of stocks is related to the size of listed companies; Stattman (1980) found that the ratio of stock price to book value (P/B ratio) is also an important factor affecting stock price. Fama and French (1993) put forward that P/E ratio and P/B ratio are added to the β factors that affect asset prices.
The efficient market hypothesis seems powerless to explain these abnormal phenomena. Some people have tried to explain the "January effect" as the influence of tax outflow at the end of the year, but in countries such as Britain and Australia where the annual income is not1February, there are still "January effects" that cannot be explained. Some scholars explain these abnormal phenomena from the perspective of psychology. For example, Dreman (1982) interprets the P/E ratio effect of stock prices as that investors always overestimate high-growth stocks, which leads to the overvaluation of the stock market with high P/E ratio, which is considered as a reason for the low stock returns.
3. Continuous time model
There is another important assumption in asset pricing theory: the stock market is always in a continuous process. Under this assumption, Merton (1969, 197 1) developed the instantaneous CAPM capital asset pricing model (ICAPM), which is also symmetrical in information and frictionless in market, and the asset price changes conform to Ito process. Under these conditions, asset prices and investor preferences are independent and effective. In the following research, Merton (1973) and Black (1973) successfully applied these continuous-time models to the option pricing formula, which was later confirmed by a large number of empirical studies and widely used in practice.
(B) the uncertainty of the company's financial management
Financial analysis is another important field of financial management, which mainly studies the ratio of debt to stock options and the company's dividend policy in investment decisions. The first research achievement in this field was put forward by Modigliani and Miller (1958). Their research shows that the value of a company in a complete market (without market friction and information asymmetry) has nothing to do with its debt ratio (MM theorem). A similar study concluded that the value of the company's profit distribution policy is irrelevant. Obviously, these findings are not practical in reality. Based on the conclusion of MM theorem, in profit distribution, because cash outflow will make Li Jinhong find out that companies will prefer to choose share repurchase policy rather than dividend policy. In reality, many companies prefer dividend to share repurchase, which is called "dividend mystery of companies" by Blake (1976), to which Miller (1977) refers. The reason why the so-called bankruptcy cost affects the financial structure is that some liabilities of the company can be reduced or exempted. On the other hand, because of the bankruptcy risk of the company with high debt ratio, the debt ratio has an impact on the value of existing stocks. Miller and other scholars' explanations of these financial problems are not very satisfactory, and it seems that a breakthrough has been made in the explanation of these problems until the introduction of information asymmetry.
As mentioned above, some phenomena in reality are difficult to be satisfactorily explained simply by uncertainty (risk). It is precisely in the study of these problems that concerns about the asymmetry of financial information are raised, coupled with the breakthrough in the research methods of information economics represented by game theory in the 1960s that many scholars have made many achievements in the research on the asymmetry of financial information, especially the use of information asymmetry can perfectly explain many financial structural problems. The following is an overview of this still result, which is divided into two parts, the first is the result of financial decision, and the second is the result of asset pricing.
(A) the application of information asymmetry in enterprise financial management