Research On The Impact Of Investor Sentiment Against Stock Return

Since the1990s, behavioral finance has become a hot spot of finance research.Behavioral finance relaxes rational person and unlimited arbitrage which are the twoassumptions of modern finance theory. The assumptions of behavioral finance aremore close to realistic financial markets. Behavioral finance questioned traditionalefficient market hypothesis and think that the market is not always effective. As anemerging stock market, China’s stock market-related laws and systems are imperfect.In theory, compared to Western countries, investor sentiment will have a greaterextent impact on China’s stock market. From the perspective of behavioral finance,this article researches the actual impact which investor sentiment has on China’s stockmarket. On the analysis and comparison of several definitions of investor sentiment,this paper definite investor sentiment as a kind of expectation of investors with asystematic deviation. Combined with the actual situation in our country, this paperpoints out that investors in China have special sentiment features, and from the macroand micro perspective analyses the reasons of these special sentiment features. Basedon the analysis of characteristics of investor sentiment in China, this paper deducedthe mechanism that investor sentiment influence stock return. China’s stock marketvolatility has been huge, which is difficult to explain by fluctuations in fundamentals.Thus, the paper attempts to explore whether investor sentiment leads to the hugevolatility of China’s stock market and stock returns would constitute a systemic riskfactor or not. If imbalances in the stock market will be exacerbated by investorsentiment, then can investors forecast futural stock return by observing investorsentiment?Measure of investor sentiment has been a very complex task. This articleborrows method from foreign research, according to the actual situation of China’sstock market, selects the Shanghai and Shenzhen stock turnover, closed-end funddiscount, investor account growth, IPO first day return and quantity, consumerconfidence, and use principal component analysis to make up a composite index tomeasure investor sentiment. This paper used multiple regression analysis andGARCH-M analysis to draw the following conclusions:(1) the relationship betweenstock returns and investor sentiment are positively correlated, that is stock returnsincrease when investor sentiment increases, and vice versa.(2) Fluctuations ininvestor sentiment become a systemic risk factor of stock returns.(3)The investorsentiment from half year to one year has a certain amount of revenue predictability.