An Empirical Analysis Of The Influence Of Investor Emotional Contagion On China's Stock Market Returns And Stock Market Fluctuation

In traditional financial theory,market investors follow the hypothesis of “Rational People”,that is,investors pursue profit maximization when risk is certain,and pursue risk minimization when the benefits are the same.There are some theory follow the theory of “Rational People” hypothesis like Rose's APT model and Markowitz's "Asset Portfolio Theory",William Sharp's CAPM model,and option pricing theory.In traditional financial theory,the unreasonable pricing of assets will return to their own value through the arbitrage of investors,and the irrational behavior of investors will eventually disappear through market transactions.In traditional financial theory,the market will pass investment.Market behaviors such as arbitrage ultimately achieve effectiveness.However,with the continuous development of financial markets,more and more financial phenomena are difficult to explain with traditional financial theories.Economists have challenged traditional financial theories by integrating investor individual psychology and behavioral science theories into financial theory.Formed the current behavioral finance.From the perspective of micro-individual behavior,behavioral finance attempts to explain the reasons behind financial market phenomena with psychological factors such as behavioral motivation.Since the price changes and fluctuations in the stock market are largely subject to the subjective influence of investor sentiment,it is extremely important to study the relationship between investor sentiment and the return and volatility of the stock market.In this context,this paper mainly studies the impact of changes in Chinese investor sentiment on China's stock market.The research on China's stock market is carried out in two aspects: the relationship between investor sentiment and China's stock market returns,and the relationship between Chinese investor sentiment volatility and China's stock market volatility.This paper firstly uses the principal component analysis method three times to scientifically and reasonably construct an index that measures the sentiment of Chinese investors without the influence of macroeconomic changes.After testing the applicability of the indicator,it is used as an important indicator of empirical research.Subsequent analytical studies.When analyzing the relationship between investor sentiment and China's stock market returns,this paper first analyzes its Granger causality and concludes that the two are Granger reasons.Based on this,the Fama-French three-factor model is used to further Analysis of the relationship betweenthe two,the conclusion is: high investor sentiment can increase the stock market returns;the increase in stock market returns can exacerbate investor sentiment fluctuations;the fluctuation of stock market returns has a more significant effect on investor sentiment fluctuations.When analyzing the relationship between investor sentiment and China's stock market volatility,the Granger causality test is firstly carried out,and the reasons for the mutual Granger are obtained.Based on this,the relationship between the two is analyzed by GARCH(1,1)model.The conclusion is: changes in investor sentiment will aggravate market volatility,while market volatility will positively promote investor sentiment volatility,and according to the analysis conclusions,the stimulating effect of stock market volatility on investor sentiment is more obvious.The final article is based on this article.Finally,the article proposes the improvement direction of future research based on the problems in the research process and the inadequacies of the research.