The Study Of Impactions Of Investor Sentiments On Stock Returns And The Volatilities

The changes of investor sentiments are the most direct response of paychology . Decisions made by emotions bring along some emotional color. Instead, investor sentiment is also vulnerable to the impact of trends in the stock market ups and downs.Volatility of the trends promote long extension of investor sentiment.This paper based on previous studies, investigates the relationships of investor sentiment,returns and volatility, the relationship is positive or negative. Comprehensive investor sentiment index CISI is constructed by CCI, CEFD, TURN and NIA.Use CISI makes an comprehensive empirical analysis on stock market.Analyze the predictabilable power of CISI on returns and volatility.Empirical results of returns and CISI show that the two movements in the same direction. It can be inferred that if the CISI rises, returns will rise too. However, volatility and the CISI change is a negative correlation.Whether considered the lagged returns, the relation between CISI and Shanghai Composite Index is positive, and when ignore the impaction of returns, the forecast direction of the CISI and Shenzhen Component Index is positive.The eqution incoluded 4 lagged volatility data predicting the impact of CISI on realized volatility.The predictive direction of CISI and realized volatility is positive.It means that investors expectes the better the future, the greater the realized volatility.Otherwise,economic growth are expected slowdown or decline,volatility is smaller.The study of investor sentiment and stock returns,volatility can effectively monitor the operation of securities markets, buffer the risks come from investor sentiment fluctuations, and enjoy the benefits of correct prediction.