Empirical Analysis Of Investor Sentiment On China A-Share Market Return

Since the 1960s, the financial markets continue to emerge visions, but the traditional financial theory can not explain these visions completely. So a discipline called behavioral finance gradually formed, which is a combination of psychology, cognitive science and finance. It explain the market behavior from the point of view "human", give full consideration to the impact of investor psychology (investor sentiment) in the stock market. Behavioral finance relaxes rational person and unlimited arbitrage which are the two assumptions of modern finance theory. As an emerging market, the relevant laws, the system is imperfect in China’s stock market. In theory, China’s stock market is more vulnerable to investor sentiment than the mature Western stock market. From the perspective of behavioral finance, this article researches the actual impact which investor sentiment has on China’s stock market. Combined with current research, this article summaries the definitions of investor sentiment and performance characteristics, and analyze the investor sentiment characteristics from the macro and micro level, which exist in Chinese’s stock market. Thus, whether the Chinese stock market returns is related to the investor sentiment, and what kind of relationship between the two variables is the question explored in the next article. But how measure the investor sentiment? Through research methods from home and abroad, according to the actual situation of China’s stock market, this article choose turnover, closed-end fund discount, the new investor accounts, the consumer confidence index, A-share turnover, IPO number six direct and indirect sentiment indicators to construct composite index. The method is principal component analysis. When exploring the relationship between investor sentiment and China’s stock market, this article adds macro and company-level factors, lagged variables to the model as control variables. By multiple regression analysis, this article concludes the following conclusions:Firstly, Chinese stock market is not yet mature, the system is imperfect, the investor structure is irrational and so on, so it is easy to form market sentiment. Secondly, closed-end fund discount, turnover, number of new accounts and trading volume, these four indicators can better reflect China’s stock market investor sentiment.Thirdly, the affect of investor sentiment on stock returns have short and long term points. In the short term, there is a positive relationship between the two variables, in the long term, initially, there is a negative relationship between the two variables, then, the real returns on stocks will rise, there will be a positive correlation again between the two variables. Lastly, there is a cause and effect relationship between the investor sentiment and the market return, or we can say there is a feedback mechanism between the two variables.