The Influence Of Investor's Emotion On Stock Returns

The Chinese stock market is an emerging market that is in a period of rapid development.However,due to the short establishment time,inadequate market policy system design,lack of market supervision,and uneven quality of market participants.All of these factors have led to the fact that our country's securities market does not fully comply with the two assumptions of traditional financial theory of capital markets: market effectiveness assumption and investor rationality assumption.This means that investor sentiment plays a very important role in the Chinese capital market.This article takes the split share structure reform as a starting point and takes the Shanghai stock market of 2005.05-2015.05 as the research object.Seven stock market-related emotional factors were selected.Investor sentiment index ISI and ISCI were constructed with principal component analysis methods and measurement regression model analysis methods,respectively,and compared the degree of interpretation of the two stock indexes to our stock market.The results show that the ISCI index which was based on the analytical regression model analysis method is better.On this basis,the distribution lag model was used to quantitatively study the relationship between stock market portfolio yield and ISCI index,and the distribution rate lag equation of market return rate on investor sentiment index was obtained.According to the differences of influence of investor sentiment in stock returns of different industries,a quasi-independent regression model was established to comprehensively analyze the impact of investor sentiment on stock returns in different industries.Conforming to the time-series differences of investor sentiment in the stock market,an OLS model with dummy variables is established.Through the regression model with dummy variables,the influence of investor sentiment on portfolio returns in different periods is discussed.This article has drawn some conclusions as follow: 1.In the short term,the market return rate has a positive correlation with the investor sentiment index,conversely in the long term it shows a negative correlation;the influence of investor sentiment on the market return rate gradually decreases with the passage of time.2.Investor sentiment has different levels of influence on different industries.The industry can be divided into emotionally sensitive industries,more emotionallysensitive industries and emotionally insensitive industries in accordance with different levels of influence.3.The influence of investor sentiment on stock returns during the bear market period and bull market period is asymmetric,and investors' sentiment has a greater impact on stock returns during the bull market than bear markets.When it is a bear market,changes in investor sentiment is not the influence factor of the yield.Therefore,strengthening investor quality education,paying attention to changes in investor sentiment,and reducing the impact of irrational emotions on the stock market are of great significance for the sound and stable development of China's stock market.