Research On The Correlation Between Investor Sentiment And Stock Returns

With the development of financial markets, the phenomenon which traditional financial theory cannot explain appeared in succession. In order to explain the financial visions, foreign scholars introduced the psychology research into finance and developed the behavioral finance. They hope to make the supplement and explanation for the part which traditional finance cannot explain. The key content of behavioral finance is the impact process between investor psychology and the financial market. Based on the research of the impact process, the behavioral finance can make more effective interpretation for the market phenomenon. As the stock market in China was set up late, irrational behavior of investors is very obvious. Investors in the market are highly susceptible to the influence of all kinds of messages. Therefore, in recent years, many scholars explore the characteristics of Chinese stock market using the behavioral finance theory. Investor sentiment is a reflection of the investor psychology and is an important research content in the behavioral finance. Emotional investment behavior of investors in China is very obvious and the behavior is likely to impact the returns on stock. Therefore, from the perspective of behavioral finance, this article researches the investor sentiment impact on stock returns. Through the research conclusions, the research proposes some investment advices for stock investors.Combined with the reality of Chinese stock market, the article supports part of the behavioral finance theory points through theoretical research and empirical research.In terms of theory, this paper introduces the traditional financial theory and its classical model as the background of behavioral finance theory. Then this paper introduces the main content of the study of behavioral finance theory and models employed in this paper. Thirdly, the research on investor sentiment is introduced in this paper, including the definition of investor sentiment, the measurement of investor sentiment and market revenue. Finally, the research puts forward the hypotheses based on the characteristics of Chinese stock market and the theoretical part.In empirical aspect, this article summarizes the research in the literature. Through analyzing single factor model and the improved Fama-French three-factor model, the main conclusions of this research are as follows:1. Investor sentiment can affect market revenue as a significant and independent role in addition to the market risk factors.2. The impact of investor sentiment degree is different. Small-cap stocks, penny stocks, small profit stocks and high p/e ratio stocks are more susceptible to the influence of investor sentiment.The innovations of this research are as follows:1. The investor sentiment is more objective and standard than ever before. This article combines with the actual situation in our country. The research chooses investor sentiment index variables to build the investor sentiment index by using the principal component analysis.2. This article supplemented previous research in the field by riching the kinds of stock yield.