Chinese Institutional Investor Sentiment Research And Its Mutual Effects With Stock Returns

Using the efficient market hypothesis and rational economic people as a standard, the standard finance theory was very difficult to explain market anomalies. And it shows the limitations of standard finance. However the behavioral finance did focus on the rational people hypothetical argument and study investor psychology characteristics of cognitive, emotional and preferences, as well as the market of non-effectiveness resulting in the decision-making process. Investor sentiment as an important branch of behavioral finance, which has strong explanatory power in terms of asset prices deviate from intrinsic value, was more and more attention by scholars. Currently, institutional investors have a very important role in China’s stock market. We study the effects of institutions investor sentiment and stock market returns; will help us to further understand the behavior of institutional investors and market volatility.In this paper, based on the bounded rationality and cognitive biases of institutional investors, analyzes the causes of institutional investor sentiment and its impact on earnings volatility of the stock market mechanisms. Followed by the institutional investor sentiment proxies preferred program selected five implict sentiment indicators as proxy indicators of investor sentiment institution building composite index, which are new institutional investor accounts(ZNIA), yields of IPO(ZIPOR), income trading volume of IPO(ZIPOV), the price-earnings ratio(ZPE) and the HS-300 Index trading volume(ZTV). Excluding the impact of macroeconomic factors, the paper will use the way of principal component analysis to construct in line with our institutional investor sentiment index.In the empirical section, the paper selected the trading date from April 2007 to December 2014 as a sample of the data to construct a vector auto-regression(VAR) model and the integration of emotional capital asset pricing model. Then they were verified the relationship between investor sentiment with Shenzhen index and Shenwan style index earnings.The study shows that: there is interaction between the sentiment of institutional investors and stock market returns deep into the relationship, both lag significantly associated with a statistically significant when the first phase, but the impact of changes in stock market returns for institutional investors sentiment to be more obvious. In the model of emotional capital asset pricing model, there are differences of impact on institutional investor sentiment on the stock in different styles stock,for example on the price-earnings ratio, performance style stock, price style, low-cost stock market capitalization style and influence of new shares. This is to some extent, also reflects the investment behavior of institutional investors.