Geographical Factors,Investors Sentiment And Stock Returns

With the emergence of more and more capital market price visions,the traditional finance theories were not sufficient to interpret research on deviation of stock returns.And unlike the regular economics and market system of the United States and other developed countries,it became necessary to introduce the study of behavioral finance into this question to research Chinese stock market.And then,this paper is trying to study China's stock market combined geography and behavioral finance.The development of Geographic Economics began in 10 years nearly,and the researches mainly concentrated on international level.But,it has had substantial contents in geography in China itself,because of its vast in territory and disproportion in regional development.Geography in China covers a wide range of factors,such as the development of regional economic,policy levels,human resources,the environment of finance,and so on,which has a significant impact on corporate earnings in the non-perfect competitive environment of China.These effects include the systemic risk of the traditional finance,such as the restriction of regional development level and policy,though more about influence of the information asymmetry and investor's irrational mentality in the behavioral finance theory.In China,there are many investors and mainly composed by personal investors,which is the reason why non-rational behavior in market existed for a long time.The non-rational psychological deviation led investors to their irrational strategic decision,covering geography irrational strategy,which then reflect on stock returns.Due to this,it's necessary to study the relationship of these.Since,we first test the influence between geography and stock returns through regress analysis,using monthly data between 2001 and 2015.We then use the conditional characteristics model to test the conditional characteristics effects of geographic and corporation factors.By these,analyze the impact of geography to stock returns comprehensively.Then,we studied the path of geographic factors affect stock returns by investors.In this paper,we structured the index of Investor Sentiment by main components analysis to estimate Investors' psychological deviation.And then,we used this index to test the cross-section returns on it through the conditional characteristics model and Fama's model.In addition,we examine the cross connection on geography and Investor Sentiment to stock returns through the regress with cross dependence.Thus,we found that companies in “Center Cities” will get more returns than “Non-Center Cities”,and the companies have extreme scale,high fluctuation,low profit or high growth will be sensitive to geographical factors.Next,the empirical test found that different characteristics' companies have different sensitization to investor sentiment.And,the impact of geography to stock returns will be adjusted by investor sentiment,which all accord with hypothesis.Finally,we put up our recommendations,which include bridging the uneven geographical development,establishing suitable policy with local conditions and strengthening investors' education.