A Study On The Fluctuation And Reversal Of Investor Sentiment In Chinese Stock Market

The research on the volatility of financial market has always been one of the focuses of academic and practical research.Different from the traditional theory which sets the subjective property of investors as constant,behavioral finance holds the view that the fluctuation of asset price is not only affected by the basic value,but also by the sentiment changes of investors.The "emerging plus transitive" feature of present Chinese stock market has a strong psychological characteristics,with the market's irrational behavior obvious and phenomenon in which investors' fear and greed result in violent fluctuations in asset prices occurring every now and then.Based on the related research of psychology and behavioral finance,the paper studies the issue of sentiment changes and reversal of Chinese institutions and individual investors from the mechanism of sentiment fluctuation,which is of theoretical significance and application value.This paper first reviews the relevant theories of investor sentiment,combined with the specific situation of Chinese stock market using principal component analysis to build institutional and individual investor sentiment measures index.Then the paper studies the changing mechanism from the sentiment fluctuation characteristics and the sentiment fluctuation reversal effect.In view of the fluctuation characteristics of investor sentiment,the paper uses GARCH model to study the fluctuation characteristics of institutional and individual investor sentiment in the case of sentiment transition point.Then the paper calculates the weight of the information index through the questionnaire survey and studies the impact of information shock on investor sentiment.Finally,based on the traditional momentum reversal model,the paper constructs the investor sentiment momentum reversal strategy based on "human nature",determines the optimal strategy and puts forward four suggestions.The innovation of this paper is mainly embodied in the following four aspects:Firstly,the sentiment fluctuation characteristics of were studied on the basis of sentiment change point.These change points were introduced into EGARCH model and TARCH model by constructing dummy variable method.Through the detection,there were 21 and 43 change points in the sentiment fluctuation sequences of institution and individual respectively.The introduction of these change points increased the degree of fitting of the model,reduced the persistence of sentiment fluctuation as well as enhanced the effect of information on it.Secondly,the method of quantifying the weight of information indicator was put forward.Different weight of the information will result in various impact on investor sentiment.Based on some literature references,consultation with professionals as well as certain characteristics of investor's cognitive model,the information indicators which attract the attention of all the Chinese investors were selected from the macro level,the company level and the market level respectively.Through quantifying the cognitive evaluation of investors on the information indicators by the means of the questionnaires,the problem of information indicator weight was solved.Thirdly,the reversal effect of investor sentiment fluctuation under the impact of information were studied,especially the sentiment reversal.This paper divides the changes of investor sentiment into three states: general fluctuation,violent fluctuation and sentiment reversal.The multiple regression model of sentiment change was used to study the effect of information shock on the sentiment reversal.The results show the number and level of information had a significant impact on the volatility reversal of institutional and individual investor sentiment.On the issue of sentiment reversal,the current psychology is also in the stage of inquiry rather than has mature theories.This paper argues that when the new information stimulus is not consistent with the current investor's sentiment state and multiple levels of information are combined,investors will quickly change their sentiment states,reflecting an inherent "animal spirit".Fourthly,the momentum reversal investment strategy based on "human nature" was constructed.Based on the characteristics of Chinese institutions and individual investor sentiment fluctuation and reversal,this paper set the state of sentiment changes as greedy combination,enthusiastic combination,disgusting combination and panic combination.By calculating the investment income of different sentiment combinations in different holding period,the optimal momentum strategy is to follow the institutional investors and hold 1 day,the optimal reversal strategy is to avoid the institutional investors and hold 30 days.The traditional momentum reversal strategy is based on the construction of certain indicators of the market.Thus,with the wide application of the strategy there is risk of failure.On the contrary,the investment strategy constructed in this paper is based on the "human nature" of the investors,which is difficult to change.As long as there are financial trades on the market,few investors can completely get rid of the impact of "human nature",so the strategy will be long-term effective,which is the biggest difference from the traditional momentum reversal investment strategy.