Research On Chinese Investor 's Mood Based On Copula Theory

Investor sentiment as one of the pillars of behavioral finance has become a hot research topic in recent years, this article will study the investor sentiment in China based on the Copula theory. Focus on the dependence structure of investor sentiment and stock return in Chinese A-share market and Chinese B-share market and the differences between domestic and foreign investor sentiment. First two empirical analysis, we use the newly opened stock trading accounts as a proxy of investor sentiment. In the last analysis we use the cumulative abnormal return of the companies both listed in the A-share and H-share as the proxy of the domestic and foreign investor sentiment.Copula-based models can reflect the asymmetric properties, time-varying correlations and tail dependence between the variables which cannot be characterized by the Granger test and the Pearson correlation coefficient. The Copula method allows the researcher to directly research on modeling univariate distributions, leaving only the task of modeling the dependence structure. This also make the Copula has a wide range of applications.In the first empirical analysis, we use the ARMA-GARCH with Hansen’s Skewed-T to model the marginal distribution, then combined with nine unconditional copulas and three time-varying copulas to study the dependence structure between the investor sentiment and the stock return. In the last two analysis, we use the nonparametric kernel density estimation to model the marginal distribution. The main conclusions are outlined in the end of the article.