A Study On Institutional Investors' Irrational Sentiment In China

China's institutional investors after ten years of sustained development, its huge liquidity and a prudent investment style on the stock market formed a very effective impact. In mature capital market institutional investors has been considered rational investors, as compared with retail investors, institutional investors not only have information superiority, but also possesses capital, thus offsetting to a large extent with individual investors to noise trading. However, China's stock market, as the market is more detailed understanding of the investment institutions continued to expand, gradually grasp the market "voice" of the professional investor does not seem to make the stock market more rational and stable, the market performance is still ups and downs of individual stock prices still spike. In fact, institutional investors are not entirely rational traders, their investment behavior is still affected by their own emotions, the herd behavior of institutional investors, overconfidence and excessive trading remains a serious problem.Based on this theoretical and practical background, this paper discuss investor sentiment, based on principal component analysis method to construct the composite indicator investor institutions, by distinguishing between investor sentiment- rational and irrational components of Institutional Investors irrational emotional impact on stock market returns. Specifically, the paper is divided into five parts: The first part introduces the definition of investor sentiment explain its mechanism of action on the stock market; the second part, the analysis of domestic institutional investors' irrational behavior and its relationship with China's stock market vision relationships; third part introduces the basic measure of investor sentiment index, then build composite index is based on elaborate and logical thinking primary indicators selected to build a comprehensive investor sentiment index last amended using principal component analysis, and isolated irrational emotional part; the fourth, the use of dynamic influence VAR model inspection agency irrational sentiment on stock returns; fifth part concludes the paper conclusions, and propose appropriate policy recommendations based on my conclusion.The results show that:(1) rational institutional investors to the stock market have a right to future earnings expectations, but institutional investors irrational emotions significantly affect rational emotive;(2) when the market fluctuations in earnings expanded organization will increase short-term irrational emotions large, institutional investors will reduce their rational judgment in short-term high volatility in the market; and(3) institutional irrational sentiment has a positive correlation to the stock market price volatility of stock returns, it will exacerbate the phenomenon of the stock market rises and falls. Therefore, regulators should intensify investment behavior of regulatory agencies, continue subdivision multi-level capital market. When the body itself can not effectively curb the spread of irrational emotion, rational judgment diminishing thus losing time to stabilize the market forces, securities regulators should guide the investment direction of institutional investors, balance the market risks of different income capitalization.