Market Sentiment And Systematic Pricing Bias In Securities Trading

Financial experts have paid continued attention to the pricing bias in securities market, and conduct a lot of research. This paper interprets the problem from the perspective of market sentiment, and has found out the relationship between them through empirical model.This paper researches about the market sentiment problem. By summing up the research of the market sentiment index, and to compare the methods of market sentiment index, this paper uses the monthly turnover of the Shanghai stock market, the IPO’s first day of the rate of return, new accounts in the A shares to build the market Sentiment Index of our country. Though the empirical research, we can find the lag4data of market sentiment index coincide with the Shanghai Composite Index, and market sentiment index can guide the changes of the Shanghai Composite Index, but vice versa. Then, the paper takes the issuance and the repurchase behavior of listed companies as a measure of the stock is overvalued or undervalued features. To sell additional stock and to buy the repurchase of stock of the SSE180Index constituent stocks to build a systematic pricing bias factor, results show that the systematic pricing bias factor is able to track the pricing bias. The empirical research proves the existence of systematic pricing bias. Then, the study finds that the assumed condition of DSSW model about market sentiment and pricing bias relations is inconsistent with the realities that the future price of securities follows a normal distribution. Statistics shows that the future price of securities on the market has a leptokurtic and fat tail characteristics, this article select Levy Distribution with the characteristics to modify DSSW model. Through the derivation of the new model, results show that in the market with noise investors, market equilibrium price is proportional to the desired level of noise investors estimated bias; market equilibrium price is proportional to the estimated bias higher than its level of expectation; market equilibrium price is proportional to fluctuations of the Securities’historical trend in some cases. Finally, through the derivation, the data lagging behind of a certain order of the Market Sentiment Index is proportional to systematic pricing bias factor. It can be proved by Empirical research with pricing bias factor of SSE180Index and market sentiment index. From this paper, we can see that market sentiment is an explanatory power of the systematic pricing bias.