Investor Sentiment On The Expected Return And Volatility: The Influence Of Difference Of Empirical Research Based On The Industry

The abnormal price volatility, non-effective system caused by the irrational behavior risks and market characteristics exist China’s stock market for a long time, and they cannot meet the basic assumptions of the traditional mainstream of financial theory. Some abnormal financial phenomenon cannot be explained by standard financial theory. Introduction of the investor sentiment theory has important and positive significance to explain phenomenon of China’s emerging stock market. Behavioral finance theory holds that investors in the stock market are vulnerable to the emotional impact when they are making investment decisions. Thus, their decisions of investment have systematic bias; emotional factors may be the systemic risk affecting stock returns. The existence of investor sentiment factors makes the market has deviated from the normal and rational trajectory, and its volatility is often due to rising investor sentiment and strengthen, which in turn further strengthen the market volatility risk. This paper select closed-end fund discount, the market turnover, number of new open accounts, and the consumer confidence index as4hidden sentiment indicators, using principal component analysis method to construct a comprehensive market sentiment index. And research respectively the impact of investor sentiment on23Shen Wan first level industry index returns and volatility. Empirical evidence shows that there are significant differences in investor sentiment impact on index expected return and expected volatility. Furthermore, according to the difference of the impact of investor sentiment on the return of different industries index, we construct a portfolio, and test the strategy based on investor sentiment.Our empirical results showed that:1) market sentiment index and the market future gains exists significant cross-section effect, and the investor sentiment is systematic factors affecting the market index future returns. This effect is the same direction and has a certain inertia effect;2) investor sentiment has different impact on different industry index returns. The most impact appears in Information equipment industries, and the least in the transportation industry;3) investor sentiment significantly affect the expected volatility of the industry index; large investor sentiment will lead to the future larger index volatility; the impact of investor sentiment is different among industries;4) make the use of the different impact of investor sentiment for different industry earnings as to building arbitrage investment strategy, it can be able to capture significant excess returns.