The Empirical Study About Contagion Of International Investor Sentiment And Its Impact On Market Return In Chinese Stock Market

With the rapid develop of global economic integration, the economic situation around the world change instantly and experienced extreme irrational exuberance panic and fear. Standard finance theory cannot explain these phenomena, whereas behavioral finance can do it. Cognitive biases is considered by variety subjective psychological factors, such as emotional, preferences and so on. these factors have led investors can not completely rational, which led that the market is no longer entirely valid. It amended the completely rational person hypothesis. We believe that investors’ investment behavior can be seen as a process of psychological reactions. And in this process, it is also accompanied by a subjective judgment of individuals, learning, imitation and other activities, and the economic environment investors always a complex interaction.Based on the theory of behavioral finance, this paper uses the data sample from 2005.01 to 2014.06, and select sentiment proxies of 6 regions and national to constructing a composite indicator of investor sentiment and local investor sentiment., which is US, China, Japan, HK, Singapore, the European Union. The empirical results showed that the explanatory power of sentiment in US, EU and Japan is relatively large. The empirical results show that investors are indeed driven by investor sentiment among regions and countries. The stronger the emotional association, the greater influence between each other, which confirmed infectious international investor sentiment.Empirical study also shows that there are obvious interactions between the market returns and international investor sentiment, the sentiment can explain and affect the market returns in our country, and market returns has no significant influence to international investors sentiment. that the local sentiment indicators was not significant in the whole sample interval; but the coefficient of the local investor sentiment is significant during the subprime, the coefficient of the international sentiment is significantly before 2007.01 and after 2010.01. During the subprime crisis, market was dominated by the local sentiment, while before the crisis was dominated by international investor sentiment.