An Empirical Study On Investor Sentiment And Stock Returns In Hongkong

In recent years, with the rapid development of cognitive psychology, emotion and social psychology, the related research results about the preference of the investor,investor sentiment and investment decision is attached importance to by the field of financial research, behavior finance is an example of the above research results can be used for the investor sentiment.This paper mainly through two steps to study the existence of what kind of relationship between Hongkong stock market returns and investor sentiment. Thefirst step to select the IPO first day return, closed-end fund discount rate, the number of IPO,exchange rate andmarket turnover of five original sentiment index in Hongkong stock market, we construct a general investor sentiment index using principal component analysis, and then the application of ARMA-GARCH model to the comprehensive investor sentiment index and Hongkong’s Hang Seng Index has carried on the empirical analysis and the correlation analysis and Granger causality test error of ARMA-GARCH model. Research shows that the ARMA-GARCH model is a comprehensive index and the Hang Seng Index heteroscedasticity and autocorrelation of a more reasonable model.Granger causality test find that investor sentiment is the Granger cause of the Hang Seng Index and the Hang Seng Index of investor sentiment, not the cause of Granger. The second step, using the two element vector auto regression model(VAR model) to study the relationship between investor sentiment and the Hang Seng indexsequence, found that the first order lag of VAR(1) model can fit the Hang Seng Index and investor sentiment sequence is very good, the Granger causality test also found that investorsentiment is a Granger cause of the Hang Seng Index, while the Hang Seng Index of investor sentiment is not Granger reason. That change in investor sentiment will lead to the Hongkong stock market volatility, when investor sentiment is optimistic state, the stock market will correspondingly rise, when investor sentiment is pessimistic about the state, the stock market will tend to fall.