Relationship Of Investor Sentiment And The Shanghai A-share Earnings

With the development of the financial sector, the stock market has become the main financing channels in an international context. It plays an important role in the securities market not only in the corporate financial intermediation, also attracts a growing number of individual investors to participate in the market, making their lives more economical, and information technology. However, while the development of the securities market, also produced a series of problems, many traditional finance is difficult to explain the anomalies appear in the market, such as the mystery of the closed-end fund discount and calendar effects. To explain these financial vision, economists sociology, psychology, economics and other disciplines combine the development of a new discipline-behavioral finance. Investor sentiment is the hotspot of research in behavioral finance, which reflects investors’ psychology and decision-making, is bound to have a significant impact on investor behavior, decision-making, stock trading volume and stock returns. Through empirical analysis on the basis of previous studies on China’s stock market investor sentiment and its measure of the relationship between stock returns.Considering the the arbitrariness of subjective indicators, with the actual situation of China’s stock market, we choose objective indicators. With China’s Shanghai A-share monthly return data as indicators of stock returns in this paper, we have taken theoretical and empirical analysis on the relationships between Investor Sentiment(IS), its each key index and stock return by VAR model with2005-2011monthly datas. We get4indexes:Turnover, Closed-end Fund Discount(DCF), IPO first day of earnings(IPO) and Price-earnings Ratio(PE), which comprise the IS by PCA(Principal Component Analysis). Then we do the study by VAR model on the relationship between investor sentiment and stock returns. Conclusion:The investor sentiment can be built well by the four indexes; Turnover and PE both have positive correlations with IS, and negative correlations with stock return, while DCF and IPO act just the opposite; IS and stock return have a negative correlation.Frequently anomalies appear in China’s stock market, in particular, it’s at the lowest ebb of our market, investor sentiment is fragile, so the fluctuations on investor sentiment and stock returns has important practical significance. Economic significance:it’s helpful for investors to learn the objective factors on theirs sentiment, response to market information correctly, and invest reasonably; it’s meaningful to market stability. Political suggestion:Reduce excessive government intervention; enhance the transparency of information disclosure; improve securities market operation mechanism; strengthen the supervision of securities company and the stock exchange to reduce and stop spreading the market information.