An Empirical Study Of The Influence Of Investor Sentiment On Stock Returns Of The SME Board

The traditional finance assumes that investors are completely rational, whereby the psychological factors are excluded from financial theories such as the asset pricing theory. Financial economists found many market anomalies which can’t be explained by the traditional asset pricing theory and the efficient market hypothesis. Therefore,some economists reconsider the psychological factors into the study of finance, and then form a branch of behavioral finance. Research of investor sentiment is an important part of behavioral finance, the theory takes investor sentiment for one of the important factors to decide the price of securities and the market operation.Compared with stock market of developed countries, China’s securities market is relatively immature and so are the investors,therefore, the research of the investor sentiment and its impact on stock returns is significant for the healthy development of China’s securities market.The primary problem of the research is to select the investor sentiment index.Based on the existing research domestic and abroad, the situation and the feasibility of data collection of our country,this paper compares various sentiment indexes and then select five different sentiment indicators to construct a comprehensive index of investor sentiment by principal component analysis method. Comparing investor sentiment index with the market index shows that this index can reflect the change of the stock market investor sentiment.On the other hand,the influence on stock returns of investor sentiment in different market conditions may vary. Therefore, this paper studies how investor sentiment influences stock returns with margin trading. The securities market has finally introduced the leveraged financing mechanism and short mechanism since March31 st, 2010, when margin trading launched.whether margin trading mechanism will repress the impact on stock returns of investor sentiment or will play a role? This article tries to explore this question.This paper attempts to turn to traditional finance research framework( Fama-French three factor model) and add investor sentiment variable and margintrading variable to influence of the two variables on stock returns and the cross effect of them. This paper selects the listing corporation data of small and medium-sized plate to analyze the influence of investor sentiment, margin trading on the stock returns by static panel data model.The conclusion of empirical research supports the investor sentiment is an independent factor to influence stock returns. In addition, the results reflect the margin trading can inhibit the role of investor sentiment. This study is helpful to understand investor sentiment and maintain the healthy operation of the financial market reasonably and orderly.