Research On The Impact Of Chinese Investor Sentiment On Stock Returns

Classical financial theory holds that the market is efficient,the institutions and individual investors are rational,and the stock prices fully reflect their true value.However,there are many anomalies in the capital market financial theories couldn't explain.Thus,based on psychology and sociology,behavioral finance is proposed.Behavioral finance supports the integration of researches on human psychological activity or behavioral model with financial theories,and has proved that investor sentiment has great impact on investor trading behavior and even on stock price,which plays an important role in asset pricing.Meanwhile,investor sentiment is more and more concerned by domestic and foreign scholars.Compared with developed countries,China's capital market is immature and imperfect,for the investor sentiment significantly affect the stock market and the researches on it is still in the exploratory stage.Therefore,this thesis conducts an empirical study on the impact of investor sentiment on stock returns from the perspective of behavioral finance,and studies China's stock market returns from a new perspective.This will not only help us understand the Chinese investors' behavior,but also bring the important significance for the management and steady development of China's financial market.With reference to the existing literature and considering of data availability,this thesis selects four indicators as substitutes for investor sentiment: the close-end fund discount,the turnover rate,the new accounts number and the consumer confidence index.Considering that there may be a leading lag in the reflection of the investor sentiment,the lagged value of the four proxy variables is also included in the principal component analysis.Firstly,the initial investor sentiment index(IS1)is constructed by the one-stage principal component analysis.Then,according to the relationship between the eight variables and the IS1,four of them are selected to build the monthly investor sentiment index(IS)through the two-stage principal component analysis method.In the study of the impact of the IS on China's stock market returns,first the ADF method is used to test whether the investor sentiment indicators and stock market returns data are stable,and then Granger causality is applied to test whether the two have mutual causal relationship.Then,the ordinary least squares method is used to construct the influence equation of IS on stock market returns.and the error is corrected and the model is adjusted.Finally,the forecasting ability of the model is analyzed.The empirical results show that:(1)there is a strong correlation between IS and stock returns,and the mutual influence is mutually reinforcing.Investor sentiment index increased by 1 percentage point will lead to an increase in stock market by 0.0157 percentage points;(2)the investor sentiment indicators have a certain effect to predict the future stock market returns.The rise by one percentage of this month's investor sentiment indicators will result in the rise by 0.0632 percentage of stock market yields of the next month.However,as time goes on,the coefficient will be significantly smaller,the impact of the data is almost negligible after 4 months.