Study On Conduction Effect Of Investor Sentiment In Media Coverage Affecting Stock Returns

Information asymmetry is an important feature of securities market. A varietyof information people needed to make investment decisions is mostly obtainedthrough the media, and the financial media has become an important part of thesecurities market. Growing evidence that the financial media can affect the price offinancial assets and is closely related to investors interests. Media coverage canaffect asset prices definitely through investors. The behavioral finance theory holdsthat the investment behavior of investors will be affected by investor attention,beliefs, emotions and other factors, so it is very meaningful to explore thetransmission mechanism and specific process of media affecting asset prices.Firstly, the paper defined the media variable based on the comparative analysisof the literatures. Univariate analysis compared the differences of stock returnsbetween different media coverage degree and regressioned media coverage on thecross-section of stock returns controlling for other risk factors. Multivariate analysisformed a portfolio that longs the stocks with low media caverage and shorts thestocks with high media coverage and tested the significance and the stability ofmedia effect by CAPM model, three factor model, four factor model and addedliquidity factor model, and then explained the media effect based on the efficientmarket theory and behavioral finance theory.Secondly, the paper constructed a stock investor sentiment index usingprincipal component analysis based on the exchange rate, transaction volume growth,bullish sentiment index and rise-to-flow average days and empirically tested theimpact of the level and change of investor sentiment on cross-sectional stockreturns.The paper established a stock pricing forecast model of rational traders andnoise traders using Bias decision theory, and derived the stock pricing model withinvestor sentiment based on the DSSW model and then compared the theoreticalanalysis and empirical results.Finally, the paper regressioned media coverage and investor sentiment, andinvestor sentiment changes together on stock returns through the CAPM model,three factor model, added flow factor model and obtained the direct effect of mediacoverage affecting stock returns. And then tested the mediating effect of investorsentiment and the interaction effect between media coverage and investor sentiment,also analysed the specific process of media coverage affecting stock returns throughinvestor sentiment.