The Influence Of Investor Sentiment To Stock Return

Since the Effective Market Hypothesis and Capital Asset Pricing Model(CAPM)is put forward, it makes far-reaching influence on the academician to study the relation between earning and risk in financial fields. Banz is the first one to find the size effect in the cross-section of stock return. Reserches during about twenty years told us that beta is not so powerful in explaining the style of cross-section of stock return, and it also explains little about the return of portfolio, on the other hand, there are some anomalies conflict to traditional financial theory: many company characteristic variables such as size, earning to price, capital leverage, book to market etc. have strong abilities to explain the style of stock return, and have strong pertinency.So this paper intend to excavate factor which can affect the return of stock, in order to study the effect of investor sentiment to the return of stock form the aspect of market anomaly. The difference is that this article introduce investor sentiment index for individual stock in the study, while studies on this topic almost only focus on the macroscopical investor sentiment index.First of all, this article expatiate the mechanism of the effect of investor sentiment to the return of stock. Because the study is about the stock market in our country, considering the particularity of our stock market, we analyze the characteristic in structure and sentiment of investors in the stock market of our country. Then we study the effect of investor sentiment to the return of stock in domestic stock market on the base of the practical situation, and get the conclusion as follow: investor sentiment is a powerful factor the explain the return of stock in our country, there is a negative relation between them. That is to say the stocks that have higher investor sentiment always have a lower return in the future. It shows that dumb money effect exists in our stock market. When the individual investor are investing, they always suffer from their active allocation. In the opposite, it is wise to take the contrary investment strategy. It gives us significant suggestions in constructing the stock market and choosing investment strategy.