The Influence Of Investor Sentiment On Size Effect And Value Effect Of China's Stock Market

A large number of empirical studies show that there is irrational behaviors in China's stock market,such as size effect or value effect,which are contrary to traditional financial theory's rationality and risk aversion hypothesis.In this context,behavior finance emerges as the times require.It attempts to explore the transmission mechanism of investor psychology and behavior to financial market performance from many aspects sush as sociology,behavior science and psychology.This paper is devoted to studying the influence mechanism of sentiment on two kinds of market anomalies,such as size effect and value effect,on the basis of investor sentiment index.With the development of new media tools,web blog comments have become the carrier for investors to express subjective market judgment and expectation.The content of these texts is in fact an embodiment of investor sentiment.The development of text mining technology provides technical support for mining these text information,acquiring useful knowledge,understanding investors' inner activities and constructing sentimental indicators.In terms of investor sentiment,scholars' research focuses on building indicators with only market trading data or using text mining to represent sentiments.In this paper,the two methods are combined to build sentimental indicators.In the process of text mining,the Sina Financial Review is used as the raw material to extract and store.The text is cleaned to denoise the participle,and the financial sentimental dictionary is established artificially.According to the set up of the dictionary to count the frequency of sentiment words in order to get the sentimental component.Besides,this component is combined with other trading data that can represent investor sentiment in stock market,and a comprehensive investor sentiment index is constructed by principal component analysis.The empirical results show that the correlation between Sentiment Index and stock market returns is 0.65,and the correlation coefficient is 0.87 with the closing price of stock market,indicating that sentimental indicators are basically the same with market trend.In addition,the Garch model is set up to look at the impact of sentimental indicators on closing prices.It is found that the impact of sentimental fluctuations on the closing price is persistent,and when the investor sentiment is high,it has a positive impact on the closing price and a negative impact on the decline.It shows that the sentimental index is ideal and can reflect the overall change of the stock market to a certain extent.The results of combination analysis show that there is a significant size effect and value effect in China's stock market.When studying the influence of sentiment on the size effect,it is found that the higher the investor sentiment,the more significant the size effect is.The impact of current optimism on earnings is greater than the impact of previous optimism,which is due to investors' overreaction in the current period.The small plate stocks are more sensitive to sentimental influence,and the excess returns are more obvious in the optimistic mood,and the size effect is significant.The influence of sentiment on value effect shows that the value effect is the most significant in the neutral state of investor sentiment.Speculators prefer to hold riskier value stocks and are more sensitive to optimism that can bring benefits.On the contrary,most investors in the growing stock share the risk of disgust and are more sensitive to the pessimism of the loss.When the investor's mood swings,the value investment strategy will get the excess return rate,and the value effect is significant.Inconclusion,the main reason for the size effect is investors' excessive response to favorable information,and the value effect is mainly formed by investors' preference for risk.