Research On Timing Investment Based On Investor Sentiment

In our country's stock market,individual investors have become the dominated part of the investment group,which don't have genuine expertise,a solid foundation of professional knowledge and can't in control of the financial system in the securities,insurance,credit,investment,and many other knowledge.Besides,individual investors have more speculative actions than investment behaviors,and various rumours,gossip in stock market become the main basis of their investment decisions,which make them have biases in investment psychology and behavior,and lead to investor's behavior unreasonable,thus comply with the noise traders' characteristics.Investor sentiment mainly shows that due to investors can't get the information they need,or affected by psychological factors,such as desires and beliefs,or some external factors,they make the irrational investment behaviors.Because of later development of our capital market,policy-dependent stock market,the flaws of system and the system environment,the Chinese investors prefers to focus on some information that has nothing to do with company values.So investors always lack of much rationality and are very affected by rumours when investing,forming buoyant or depressed investor sentiment.This phenomenon will intensify boom collapsed in our stock market.The researches about investor sentiment among domestic and overseas scholars are limited to two aspects.One is for investor sentiment and the financial asset price,and the other is for investor sentiment and companies investing and financing behavior,while less extend it on other aspects.So this paper proceeds from timing theory,based on the relationship of investor sentiment and securities market,combining the predictability of investor sentiment,and studying the timing investment strategy of it.Thus,the main empirical work of this paper may divide into three parts: the first part is about what is the relationship between investor sentiment and securities market.The second part is about whether investor sentiment has predictability? And the last part is whether timing investment strategy can bring excess earnings to investors.After choosing several original indexes of investor sentiment,this paper uses principal component analysis(PCA)to build comprehensive substitution variable of investor sentiment.Then,by using single-factor mode,Fama-French three factors model and its error-correction model.this paper finds that investor sentiment has positive significant effect on stock market returns.After that,by decomposing investor sentiment,this paper finds that it has really predictability for our stock market.In the last,based on this predictability,this paper builds a timing investment strategy,and compares it with index investment strategy,analyzing whether timing investment strategy can bring excess earnings to investors,that means whether timing investment strategy can beat the market.The empirical study indicates that this timing investment strategy,which based on the signal of investor sentiment,can bring excess earnings.This shows that following the noise of the market in the short term can bring excess earnings to investors.So when investor sentiment is clearly,investor had better not fight it.In addition,by GARCH model,this analyze investors' investment behavior which based on timing investment strategy whether has significant impacts on the stock index volatility,and evidence found at the same time,although emotional investing can bring excess earnings in the short term,it will result in aggravating the stock index volatility due to the essence of noise trade.