Can Investor Sentiment Affect Stock Liquidity?

In recent years,investor sentiment and liquidity as the research hot topics in the field of behavioral finance,relevant research results made large contribution to explain the financial anomalies of financial market.In practice,changes in domestic and international securities market conditions also reveal that there is a relationship between investor sentiment and the liquidity of the stock market.In the negative news spread,investors' panic spread and market liquidity are scarce,leading to investors panic further enlarge,forming a spiral of the vicious circle.In this paper,we analyzed the relationship between investor sentiment and stock liquidity combined the empirical analysis and theoretical analysis,we analyzed and studied the influence relationship,influence mechanism and channel between investor sentiment and liquidity.The influence relationship between investor sentiment and stock liquidity is mainly through the correlation analysis,phase comparison analysis,Granger causality test,step by step to determine what kind of impact relationship between them.The results show that there is a negative correlation between investor sentiment and the stock non-liquidity,it means that there is a positive relationship with stock liquidity.When considering the influence of market value difference of different sample stock in non-liquidity index,this kind of correlation is more significant.Under the influence of the market value difference in the non-liquidity index,the non-liquidity in the investor's emotional stage is lower than the non-liquidity of the investor's depressed stage,which means that investor sentiment and stock liquidity had a positive relationship.Further through the Granger causality test found that the relationship between investor sentiment and stock non-liquidity only is investor sentiment affect the non-liquidity of the stock,and the contrary relationship is invalid in the sense of Granger;to comparative regression analysis in impact of investor sentiment on the stock liquidity found that controlling other factors of affect the liquidity of the stock,the impact of investor sentiment on the non-liquidity of the stock was even significantly negative,and in considering the impact of market size difference of the different sample stocks in the non-liquidity indicators,this effect is more prominent,indicating that the investor sentiment rising will make the stock liquidity increased.Then this article discusses the mechanism how investor sentiment affects the stock liquidity.The high investor sentiment enhanced stock liquidity based on two impact mechanisms:direct impact mechanisms and indirect impact mechanisms.The direct impact mechanism is that the higher investor sentiment will lead to the number of noise traders or the proportion of irrational market makers increased,and their irrational behavior stimulates the market volume,thus increasing the liquidity of the stock;the indirect impact mechanism is that upsurge investor sentiment means the investor overconfidence to their invest ability,too much affirmation their own strength,too optimistic,performance in their behavior is the size and the frequency of the transaction rising,result to liquidity of the stock increased.This paper analyzes the influence mechanism of investor sentiment on stock liquidity,and further analyzes investor sentiment through which channel affect the liquidity of stock.The results show that the investor sentiment rising will lead to market trading volume increased,which makes the stock non-liquidity decline,that is the stock liquidity rise,and in the process of investor sentiment impact the stock liquidity,did not confirm the existence of the role of price.And further to analysis the middle channel of how rising investor sentiment promote the stock liquidity enhanced,the results show that investor sentiment impact on stock liquidity can only be based on the way of higher investor sentiment lead to the liquidity of the stock enhance,and the change of investor sentiment can't affect the liquidity of the stock;and in the process of higher investor sentiment made the stock liquidity enhancement,the inhibitory effect of short selling is significant,that is,the impact of investor sentiment on stock liquidity is through the channel of short selling to play,and the bigger short selling of stock,the smaller impact of investor sentiment on its liquidity.Based on the role of short selling,the impact role of upsurge investor sentiment lead to the stock liquidity increase is limited.Finally,based on the conclusion of this paper,some suggestions are put forward to regulate the securities market to healthy and orderly development and ensure the liquidity to smooth,healthy and orderly development from three perspectives:investors themselves,institutional investors and securities market supervisors.