The Influence Of Investor Sentiment On The Volatility Of China's Stock Market

Traditional finance strictly follows the effective market theory and the rational person hypothesis.However,as the financial development continues to deepen,its realistic explanatory power begins to decline gradually,and behavioral finance has emerged as the times require.The behavioral finance theory focuses on the individual level of investors,paying particular attention to the role of the psychological characteristics of investors in their investment process.At the same time,as financial innovation continues to accelerate,the margin trading mechanism begins to play an important role in promoting price discovery efficiency,enhancing market liquidity and hedging trading risks.It is worth noting that the margin trading transactions have amplified the supply and demand of funds and securities,providing a new mechanism and channel for investor belief expression.However,most of the current research on investor sentiment or margin trading issues is still based on the traditional finance framework.In view of this,this paper creatively jumps out of the original analysis system,the sentiment index is modified and optimized from the relationship between margin trading and sentiment heterogeneity,,thus improving the effectiveness of index construction and empirical analysis.Firstly,this paper summarizes the existing constructing methods of investor sentiment index,combs and reviews the relevant research literature on investor sentiment and the relationship between margin trading and stock market volatility;Secondly,using the VAR model to explore the interaction between stock index volatility,the margin trading mechanism and investor sentiment,the rationality of the combination of margin trading and investor sentiment is demonstrated,and the PCA method is used to optimize the sentiment index;Thirdly,the TARCH-M model is used to test the asymmetric volatility characteristics of China's stock market,as well as the asymmetric reaction of investor sentiment in the occurrence of positive and negative shocks,and give a reasonable explanation from the perspective of margin trading;Finally,using the Markov switching model to distinguish the state of stock market.On this basis,continue to explore the impact of investor sentiment on stock market volatility.The main conclusions of this paper include:First,there is a long-term cointegration relationship,as well as Granger causality between stock index,investor sentiment index and margin trading,thus integrating margin trading into the framework of behavioral finance analysis has its necessity and rationality;Second,the increase in the investor sentiment index will lead to an increase in the volatility of the current market return rate.This is because the current financing transaction scale is much larger than the securities lending transaction,so the margin financing will play a stronger role in boosting emotions than short sales;Third,the market return rate shows a significant leverage effect,and investor sentiment will suppress the original leverage effect,which is closely related to the margin trading transaction providing a new chasing-up and reluctance-to-sell channel;Fourth,the high volatility of the market will make investors more sensitive to the reaction of new news,making the marginal effect of sentiment adjustment to market volatility more intense.At the same time,investor sentiment can also weaken the original the leverage effect under such market conditions,which is consistent with the test at the overall level,and the conclusion is robust.Through the above conclusions,we puts forward corresponding suggestions in optimizing the mechanism of margin trading,strengthening the supervision of securities companies' risk control system,strengthening information disclosure requirements and promoting investor education.