The Impact Of Investor Sentiment On Stock Pricing

China's stock market has been established for nearly 30 years,with a total market value of more than 40 trillion yuan.However,the institutional construction of China's stock market and the professional knowledge reserve of investors have not been able to adapt to the current market volume.On the basis of psychological research theories,behavioral finance studies investor sentiment issues such as herd behavior.Besides,investor sentiment will further influence investor decisions and make noise trading appear in the market.Since there are many anomalies caused by investors' emotions that do not conform to the classical financial theories,scholars first relaxed the assumption of rational man and built the county magistrate model based on this.These models are also popular in China's academic circles,and many times used in China's stock market analysis.Baker & Wugler proposed the BW model in 2006,which changed the previous situation of measuring investor sentiment with a single index and constructed investor sentiment index more comprehensively and objectively.This paper adopts BW model to construct investor sentiment index to study the influence of investor sentiment on stock market price.This paper firstly combs the domestic and foreign literature on the theory of investor sentiment and stock price changes,then explains the definition and classification of investor sentiment,and clarifies the most important research object of this paper,the connotation of investor sentiment.In the theoretical analysis of the influence of investor sentiment on stock prices,this paper first lists the two basic theories of traditional finance,and the rational person hypothesis and efficient market theory,and then states the relevant theories of behavioral finance.In the comparison between traditional theory and behavioral finance theory,the mechanism analysis of investor sentiment influence investment decision is derived.The systematic cognitive bias caused by the cumulative effect of the group will have an impact on the stability of the financial market.The irrational factors,ie psychologicaldeviations,generated by the cognitive,emotional,and will processes will also lead to behavioral bias.Deviate the value of the stock market and increase the risk of the stock market.Secondly,the paper modeled on the construction of BW index method to choose the closed-end fund discount rate per month(CEFD),IPO quantity(IPON),(IPOR),a-share market IPO first-day yields new accounts(NIAC),the market turnover rate(TURN)and the consumer confidence index(CCI)as A proxy variable,using principal component analysis investor sentiment index is constructed.This article selects the Shanghai composite index on monthly yield R as a measure of China's stock market prices,for the construction of investor sentiment index IS and the yield of the Shanghai composite index R stationarity test,and then build a VAR model,based on the VAR model,in this paper,granger causality test IS carried out for the variable,then observed the variables of the impulse response function and variance decomposition diagram,in order to test the relationship between investor sentiment and the stock market returns.Finally,the conclusions of this paper are as follows:(1)The constructed investor sentiment index IS and the monthly yield of the Shanghai Composite Index R are mutually Granger causality.(2)According to the pulse result between the two variables,the impact of investor sentiment on the stock market return rate is mostly positive,although there will be a negative correction process;and the yield has a positive and negative impact on investor sentiment.It is not obvious;(3)The variance decomposition shows that the comprehensive index of investor sentiment constructed by the article can better explain the yield of the Shanghai Composite Index,indicating that the stock price of China's stock market is affected by investor sentiment to a certain extent.