Investor Sentiment And Stock Market Returns Between Empirical Research

Firstly, starting from the perspective of behavioral finance, combined with the status of China's stock market, this paper puts the necessity and reasonableness of the study of investor sentiment and stock market return rate. And then removing the macroeconomic side effect of macro economics, this paper uses principal component analysis to extraction the main component as investor sentiment index. To study the relationship between investor sentiment and the rate of return in different market state, we use the BB cycle method to get bull and bear markets usingthe stock market monthly closing price from January 1991 to July 2011 as the basis for division. Next we analyze the relationship between investor sentiment and stock market return rate by modeling on bull and bear markets. Through empirical analysis, the conclusions are as follows:First, long-term equilibrium relationship between investor sentiment and stock market return rate based on the VAR model.Through Granger results of testing, in either bull or bear market, there is two-way Granger causality relationship between investor sentiment and stock market return rate. Comparison, stock market return rate much more effects investor sentiment.Second, the asymmetric effects between investor sentiment and stock market return rate based on Tgarch-M model.The asymmetric impact of investor sentiment on stock market return rate:in the bull market state, pessimistic tendency has little effect on stock market return rate but optimistic tendency has much effect on stock market return rate; in bear market state the conclusion is just the opposite.The asymmetric impact of the stock market return rate on investor sentiment:in bull market state investor mood swings has little effect on falling tendency but it has much effect on up tendency; in bear market city state the conclusion is just the opposite.Compared with the mature market environment this paper argues that, China's stock market stock market is not completely effective, and "message market" and "policy market" characteristics exist.Market hedging mechanisms are weak, non-effective arbitrage exists, investors are obviously irrational. An Empirical Study of Investor Sentiment and Stock Market Returns, is hoped to be proven to accelerate the introduction of the measures for a stock market which is mature to a certain degree of significance.