Research On The Effects Of Investor Sentiment On Corporate Investment Behavior

Throughout the economy historical facts, we can see that the stock prices do not always behave like the traditional finance described which can fully reflect the true value of the enterprise and the invalidity of the capital market is just a short-term or temporary phenomenon but often shown as regular, systematic deviation from the basic value. Behavioral finance views the economic phenomenon from the aspect of the investor psychology factors which has the impact on the market, and uses investors’cognitive biases and over-reaction to explain the anomaly. While explaining the phenomenon in the stock market, this article try to find out the relation between investors’ sentiment and investment decisions of the listed companies.This article can be divided into five chapters. The first chapter is the introduction, the article puts forward the research question and the significance as well as the related literature review and, at the same time, the article introduced the ideas of the research contents and methods as well as the innovation, etc. The second chapter involves the main concepts and relevant theory and analyzes the effect mechanism of how invertors’sentiment could influence the investment of listed companies. The third and fourth chapter is the empirical part. First of all, according to the Chinese stock market’s characteristics, I selected five agent index of investor’s sentiment, using the principal component analysis method to build China’s investors mood index. Then combine it with the listed company investment level and a series of control variables to set up a multi-factor model about enterprise investment level. Finally using the data of investors’ sentiment index and471selected manufacturing companies’ sample data from2003to2010to do the regression, which is applied to the suggested that the empirical test and analysis. In chapter five, I summarizes the main research results and puts forward some policy suggestions, but also points out that the deficiencies of the study and future research direction.Through the theoretical analysis and empirical test, this paper found: 1. Overinvestment and investor sentiment has a significant positive correlation while between the underinvestment and investor sentiment there is a negative correlation. This shows investment behavior of the listed companies are really driven by investors’ sentiment, and to overinvestment has an effect of further deterioration while to underinvestment is an opposite correction effect2. Different types of listed companies have different responses to investors’ sentiment. For example, compare with the larger public enterprise, the small and medium-sized enterprise’s investment behavior is more related with the investors’ sentiment; compare with the long history listed enterprise, newly listed companies’investment behavior is more related with the investors’ sentiment; compare with the private listed enterprise, state-controlled listed enterprises’ investment behavior is more related with the investors’ sentiment; and the management not holding the equity of the enterprise make the companies’ investment shows the positive correlation with investor’s sentiment while the managerial ownership makes the companies’ investment shows a negative correlation with investors sentiment.