The Correlation Analysis Between Investor Sentiment And Metal Futures

Using The volatility of stock market investor sentiment to explain the stock market anomalies has been accepted by many scholars.Within The financial market globalization,spillover effect makes the relationship between the futures market and the stock market becoming more and more closely,information transfer between the two markets may exist.This makes the ups and downs of investor sentiment in the stock market affecting the futures market possible.The analysis of the relationship between the stock market sentiment and the futures market has the following meanings.Firstly,With the recent increase in equity volatility,investments in commodities and commodity futures have gained significant attention from investors.Investigation of cross-market investor sentiment thus has profound implications in terms of both asset valuation and trading strategy.Secondly,Metals offer valuable diversification to investors as a hedge against inflation,serving as a store of value or safe haven during times of market turmoil,and have a wide range of industrial and manufacturing applications.Therefore,given that metal futures represent a unique instrument,the empirical findings regarding aggregate investor sentiment may have different implications for the metal futures market.About The research method,this paper used principal component analysis to construct the different investor sentiment index: market sentiment index and industry investor sentiment index.Then this article compare the relationship between two kinds of investor sentiment index and two kinds of metal futures in different stock market forms.Secondly,In order to compare the effectiveness of market investor sentiment index constructing by principal component analysis and market investor sentiment index constructing by Spearman rank correlation method in predicting metals futures return rates,this paper designs the quantitative selection based on the model of market sentiment index.Final conclusion: First,no matter in the bull market or bear market stage,the industry sentiment index regression coefficient is more significant than the market index regression coefficient.That means metal futures return rate is more vulnerable to the investor sentiment related industry stock.Sentiment proxies that using futures related stocks can predict the trend rate of metal futures much more exactly.Second,the stock market forms does not affect the morphology to distinguish positive correlation between investor sentiment index and copper futures returns.The main reason is that no matter in what kind of market form,investor sentiment influence Shanghai copper futures returns through the demand mechanism.However,The correlation between Shanghai gold futures return rates and investor sentiment is related to the stock market form,in bull market investor sentiment influencing Shanghai gold futures is mainly through the demand mechanism,yielding a positive correlation;in bear form,investor sentiment influence Shanghai gold yield mainly through the hedging mechanism,in this stock market situation,investor sentiment is extremely low while Shanghai gold futures provides a selection tool for hedging,which pushed up the Shanghai gold futures yield.The result is the negative correlation could be yielded.Thirdly,Trend time selection strategy return resulted from applying investor sentiment constructed by Spearman rank correlation method to copper returns and Mean Reversion strategy returns gotten from applying investor sentiment constructed by Spearman rank correlation method to gold returns are both above benchmark.Besides,in terms of Sharpe Measure and Maximum back measurement,stability of both models perform well.So this paper does not tell which method is better to constuct investor sentiment index.However,in terms of annualized compound rate of return,investor sentiment could predict copper returns much more exactly.Considering the whole article,innovations come as following: first,from the construction method of A.D Persand risk appetite index to rebuild the market sentiment index by rank correlation concept,which is different from most of the literature by principal component analysis method.Second,the Copula function is used to analyze the tail correlation,which makes up the deficiency of linear regression.Third,the construction of investor sentiment timing quantitative trading model based on the verification of investor sentiment index in the prediction of futures returns effect further,rather than simply stay in the discussion of the relationship between investor sentiment and the returns of the metal futures.