The Research Of Shanghai Composite Index Forecasting Model With Investor Sentiment

With the cycle of macroeconomic cycles,stock price movements are ups and downs,which seem that there are some interaction relations between them.In order to unlock the secrets of the stock price volatility,numerous scholars started to do some research about stocks prices fluctuation reasons and their influence factors from a macroeconomic point of view,hoping to find rules of the stock price volatility,even to predict stock price movements.With the rise of behavioral finance at the end of twentieth century,a growing number of scholars jump out the framework of traditional finance,combining theoretical knowledge of psychology and other disciplines to study the relationship between irrational factors,such as the investor sentiment,and the stock price volatility.They found that “rational man hypothesis” and the “efficient market hypothesis” in the actual market activity is often difficult to achieve,and irrational factors,such as the investor sentiment,had a profound impact on the stock price fluctuation.Base on these,this paper uses five investor sentiment proxy variables to construct the investor sentiment composite indicator,creatively introducing into the Shanghai composite index forecasting model based on Granger causality test,variance decomposition and impulse response function analysis.From the perspective of throughout the study period,the PPI growth rate,the fixed-asset investment growth rate,the manufacturing PMI index,the Hang Seng index and the U.S.dollar index are Granger causes of the Shanghai composite index.The proportion of PPI growth rate and the one of industrial added value are the two largest in the model,which means the stock market has the function of reflecting macroeconomic developments.The investor sentiment composite indicator is the Granger cause of the Shanghai composite index as well as the Shanghai composite index is the Granger cause of the investor sentiment composite indicator.Comparing simulation results with actual results,most of analog values are less than actual values of the Shanghai composite index,which shows China's stock market bubble to some extent.In the bull market phase,the industrial added value,the manufacturing PMI index,the Dow Jones index and the U.S.dollar index are Granger causes of the Shanghai composite index,but there is no significant Granger causality between the investor sentiment and the Shanghai Composite Index.The investor sentiment composite indicator weghits a larger proportion in the forcasting model and it describes that the investor sentiment is an important factor to promote the stock price index to going up.Meanwhile,this paper finds that the optimism of investors is full of momentum which is not easy to change.In the bear market phase,the GDP growth rate,the manufacturing PMI index,the saving deposits and the M2-M1 are Granger causes of the Shanghai composite index,doing the further validation that the macro-economic downturn can be reflected in the bear market.The Shanghai composite index is the Granger cause of the investor sentiment.According to this point,compared to the stock price rising,the falling of the stock price is more likely to create corresponding inner fluctuations.The model in the bear market phase also certificates that the liquidity problem is the vital reason of the persistent declining of stock price.At last,the effects of prediction of Shanghai composite index forcasting model in three phases are all good.In the long run,some non-fundamental factors on the stock markets will be corrected.The stock market regulatory authority should correctly guide investors to avoid unreasonable fluctuations of stock price caused by fluctuations in the investor sentiment.The forecasting model in the paper contains macroeconomic development indicators,investor sentiment and other capital market indicators will undoubtedly provide some reference to the forecast of stock price index and the healthy development of the stock market.