Research On The Interactive Effects Of Stock Market Fluctuation And Investor Sentiment In China

From June to August 2015,the Chinese stock market experienced a period of three months of abnormal fluctuations.The Shanghai Composite Index,which represents the Chinese stock market,once fell from the highest point of 5178.19 points in June 15 to the lowest point of 3373.54 points in July,with the extreme drop of about 35%.In the abnormal fluctuation period of the Shanghai A-shares market,there have been a number of rare "market speculations" such as the thousand shares drop limit,the suspension of large-area listed companies,and the sharp fluctuations in consecutive days.The market value of Shanghai and Shenzhen stock markets has evaporated on a large scale,new shares have been suspended,and the interruption of direct finance has also caused huge losses to listed companies and market investors.After an effective government response,by September 2015,the stock market risk was basically released and the market gradually entered the adjustment period.The sharp rise and fall of Chinese stock market and several famous stocks that have occurred in the history of other developed countries have hit standard financial theories based on rational assumptions and effective market assumptions.Although the standard financial theory can explain the sudden rise and fall of the stock market,when the stock market has undergone dramatic changes from the fundamental changes in the market,then the standard financial theory that uses "rational people" as a basic hypothesis cannot give a perfect explanation.For example,when the market is affected by non-fundamental factors such as herd behavior and risk aversion,the volatility of the market will exceed the normal volatility of the market determined by the fundamentals,that is,the market has experienced abnormal fluctuations.Therefore,in this context,foreign scholars represented by Kahneman,Thaler,Shiller,etc.,have created behavioral finance theory in combination with the theories of psychology,behavior,and sociology.Behavioral finance theory relaxes the three basic assumptions of standard financial theory,further studies asset pricing under the bounded rationality hypothesis,limited arbitrage hypothesis,and market non-effective hypothesis,and tries to explain market behavior from the perspective of "human nature",creating a micro-finance study by new paradigm.Behavioral finance believes that when the market fluctuates sharply,the psychological sentiment of investors will be severely affected,causing a sharper decline,thus creating a self-fulfilling stock market crisis.Therefore,investor sentiment is an important topic and direction of research in the field of behavioral finance.It gives a more reasonable explanation for abnormal fluctuations in the stock market.Taking the Shanghai A-share market in China as an example,this paper divides the market investors into two types:individual investors and institutional investors.The principal component analysis method is used to construct the comprehensive index of individual investors' sentiments and the comprehensive index of institutional investors' sentiments.Then we use VAR model and impulse response function to analyze the interaction between individual investor sentiment,institutional investor sentiment,market's return and volatility.This article is divided into five parts altogether.The first part is an introduction.This introduction part mainly introduces the writing background and the significance of the research on this topic,and summarizes the theoretical and empirical research results on this topic at home and abroad.Based on this,the research framework of this article is established and the innovations and deficiencies of this article are elaborated.The second part is the theoretical analysis of the interaction between the fluctuation of Chinese stock market and investor sentiment.The third part is the factual observation on the interaction between Chinese stock market volatility and investor sentiment.The fourth part is the fluctuation of Chinese stock market empirical analysis of the interaction with investor sentiment.The fifth part is the conclusion and policy recommendations.Through theoretical research and empirical research,we get the full paper research results.First of all,the sentiment of individual investors in Chinese stock market has a positive aggravating effect on stock market volatility in the short term,that is,it will exacerbate market volatility and it is a booster for the market.Second,institutional investor sentiments in Chinese stock market have a negative inhibitory effect on market volatility in the short term,that is,it will stabilize the market and become a stabilizer of the market,but in the long run,its influence is limited.Finally,there are sentimental sentiments among individual investors and institutional investors in Chinese stock market.Individual investor sentiment affects institutional investor sentiment.Institutional investor sentiment changes are sensitive to individual investor's emotional changes.Institutional investor sentiment also affects individual investor sentiment.Individual investors often refer to institutional investors for investment decisions.Both have a certain degree of herding.