The Construction Of Investor Emotions In China's Stock Market And Empirical Study Of Its Relationship With Stock Returns

The securities market is a typical information asymmetric market,and there are many factors that affect,asset prices.Traditional financial theory holds that market investors are rational and homogeneous,and their emotions do not affect asset prices.As some visions are discovered:behavioral finance are developed.A large number of scholars have found that investors in the market are affected by many irrational emotions,and stock prices are also affected by investor sentiment.Based on t.he current situation of China's irrational phenomenon,this paper aims to build a better investor,sentiment index in the Chinese st.ock market and explore its relationship with the future earnings of the stock.Firstly,constructing the investor sentiment index is the most important part of the full text,and it is also the basis of the empirical analysis.This paper improves the structure of emotional agency indicators with referenceto other scholars.On this basis,a new investor sentiment index is constructed by com-bining principal component analysis,linear regression and partial least squares.At the same time,the sentiment index of partial least squares is constructed as a comparison reference.Both construction processes use the same four emotion-al proxy variables,namely closed-end fund discount rate,consumer confidence index,new account opening and turnover rate.Then,based on the above analysis of the sentiment index on the stock return-s,an empirical analysis was conducted.The following conclusions are drawn:Firstly,using the encompassing regression method to compare the two investor sentiment,indices,it is found that the new investor sentiment is far superior to the partial least squares sentiment index in predicting stock returns.Secondly,for the integrated stock market,investor sentiment is indeed proportional to future stock returns and can be used as a supplement to relevant traditional theories.Thirdly,in different markcet,sentiment indices and stock returus are positively correlated,but stock market returns are differently sensitive to investor sentimen-t.The Shenzhen market is more susceptible to investor sentiment.The investor sentiment in the B-share market is more relevant to the future earnings of the stock.finally,different investor sentiments have different effects on future stock returns.Extreme emotions are more likely to cause changes in stock returns.Among them,pessimism is more likely to cause stock market decline.In summary,we conclude that in the Chinese stock market,investor sentiment does affect market stock returns,and this effert,is generally positive.At the same time,the sentiment index constructed in this paper performs better in predicting stock returns.