Based On The Behavior Of Financial Markets Asymmetry Of Risk Conduction Mode Research

As the traditional financial theories being challenged by Market Anomalies, the fundamental hypothesis underlying their development-hypothesis of rational man and Efficient Market Hypothesis-are becoming harder to hold. Behavioral Finance becomes the hotspot of finance research since1980s, which absorbs current fruits of contemporary psychology and bases its theory on real hypothesis conditions-psychological factors of investors are introduced into finance analysis.Market risk, reflected by volatility of return generally, takes on an obvious characteristic of asymmetry, which means impact degree of good information is different from that of bad news; however there are articles simulating or forecasting volatilities in both domestic and oversea area, few researchers take reasons into serious consideration.This article makes research into asymmetric transmission mechanism of volatility with behavioral finance on the basis of existing models of estimating or forecasting volatility. Firstly we get investors’ sentiment index with Principal Component Analysis as well as its relationship with daily return of market index and model sentiment index by injecting Value Function of Prospect Theory into several models later on; test Herd Effect of Chinese market; checking asymmetry of volatility of Chinese market index return, make SENT-GARCH-M-adj Model based on GARCH-M model by introducing investors’ sentiment into disturbing items and make some judgement of adjusted model by estimating and volatility and VaR; then we test causality of investors’sentiment and market risk; finally we figure out whether asymmetric risk could spread between markets and generate Spillover Effect. By analyzing behaviors of individual investors, the article makes some insights about how asymmetric risk or asymmetric volatility comes about and is transmitted between market places by multi-modeling and gets significant empirical results with data available.Large amount of empirical tests yield that investors in Chinese market behave different from patterns proposed by Prospect Theory and impact of good information is bigger than that of bad news; investors’ sentiment have positive relationship to returns while imposing asymmetric influence on volatility and generating Spiral reinforcement Effect under drive of Herd Effect and stable investors’ sentiment reaches. Sentiment could spread across markets so there are Spillover Effect under asymmetric risk.