The Effection Of Investor Sentiment To Momentum Profits

Does investor sentiment affect financial asset prices? Since Delong (1990) first proposed the concept of investor sentiment, academia has set off a surge of research climax of the investor sentiment theory. As an important part of behavioral finance, the research of investor sentiment has been paid more attentions by academia, especially due to the strange phenomenon of huge unnormal rises and falls in the stock market which makes the efficient market hypothesis and rational hypothesis based on the traditional finance to be questioned. A vision first found by Jegadeesh and Titman (1993) of the stock market’s momentum phenomenon in the stock market is gotten more sought after by academia, causing a wide range of interesting by financial scientists, followed by its research literature sprung out. The research literature of momentum phenomenon can be roughly divided into two categories, one is the empirical research of the momentum profits existence, another is the research theory to explain a source of revenue of momentum. For the former, a large number of empirical studies have shown that momentum phenomenon not only exists in the stock market, but is also prevalent in other financial instruments, such as in the bond. In the latter research, the explanations of financial behavior finance are most accepted by majority of scholars, among which the HS model theory proposed by Hong and Stein (1999) gets most representative and greatest impact. In their model, the momentum phenomenon can be attributed to the lack of early reaction by investors, while the long-term price reversal is caused by overreact. In this paper, based on the HS model theory by introducing some behavior psychological biases and cognitive biases has been confirmed in a number of different investor, a further analysis shows that the reaction of the investors in different emotional period for the lack of new information exists large differents, specifically, the investors perform more under-react to those bad new when the sentiment is optimistic, while they response more negative on the good news when the sentiment is pessimism, which causing the momentum phenomenon’s the uneven distribution in different emotions times. For a measure of investor sentiment, the author constructs an integrated indicators including subjective indicators and objective indicators by using principal component analysis; for solving momentum profits, the article uses the method used by Jegadeesh and Titman (1993,2001). Finally, a method of analysis of variance to verify whether the momentum profits in different emotional period showed significant differences. The empirical results show that the momentum phenomenon in china’s stock market also has uneven distribution characteristics which is similar to the mature markets abroad, while also showing some unique characteristics itself.In addition, an empirical test of the performance of existing empirical phenomenon abroad in china’s stock market, whether it is used to verify the existence of these phenomena in china’s stock market, or used to test the performance of China’s stock market, no doubt to be a great theoretical significance and practical significance.