Investor Sentiment, Security Price Fluctuation And Banking Stability

As a financial institution managing currency and credit, banks play a role of credit intermediaryby issuing currency, managing currency circulation, regulating currency requirement and supply,conducting deposit and loan, settling account. Banks, the main part of modern financial industry,are the core of national economy. Banking stability has a significant influence on the wholefinancial market, even on the stability of macroeconomics. Investor sentiment has a significantinfluence on financial market by various patterns and methods. Herd effect, for example, leadsinvestors to buy excellent securities and sell terrible securities, which plays an important part onsecurity price fluctuation. Financial mixed operation---with asset securitization as itsbusiness---is the main trend in banking industry. Therefore, security price fluctuation plays asignificant role not only on banking profit, but also on banking asset allocation.First, this paper establishes a model which is different from traditional financial intermediarytheory. This model proves that security price is an endogenous factor and analyses the influenceof investor sentiment on security prices, and the influence of securitization and leverage onsecurity price fluctuation. Also, this model analyses the influence of security price fluctuation onbanking profits, asset allocation and banking stability. Furthermore, through empirical research,this paper examines the influence of investor sentiment on security price fluctuation, and theinfluence of security price fluctuation on banking stability. Last, according to the theory andanalysis, this paper offers relevant policy proposals.