The Impact Of Market Sentiment And Industry Sentiment On Stock Returns

The current researches of investor sentiment concern more on market, few of them describe investor their own sentiment. Based on the noise trader model, this article contains market sentiment and industry sentiment these two indexes and their effects which using principal component analysis and stock funds flow to build. This paper also studies the conditional volatility of market sentiment, and empirically tests its impact on stock returns. In addition, this article also researches asymmetric effects of investor sentiment on returns and Granger causality among them by vector autoregression, and testes investor sentiment in the bull and bear markets. The results show that, market sentiment has the positive impact on industry returns. Meanwhile, the conditional expectation of volatility of market sentiment has the negative impact on industry returns. Finally, the predictive ability of industry sentiment has a unique advantage on stock returns. The impact of investor sentiment on industry excess returns is asymmetric, and it is more significant in a bull market than in a bear market. Asymmetry of investor sentiment impact on industry excess returns in the market is widespread, and investor sentiment changes show a more intense of this relationship. Market sentiment changes can be considered Granger cause of industry excess returns, and vice versa is not true, and the industry sentiment show this relation only in the specific industry. The impact of investor sentiment is more significant on excess returns in the bull market than in the bear market. In all, market investor sentiment and industry investor sentiment that we build show different effects in the market, which reveals the activities of investors in the stock market to some extent, and plays a reference for investors to understand themselves and the government to guide the activities of investors.