Research On The Influence Of Investor Emotion On Stock Returns And Its Volatility

Behavioral finance deeply analyzes the irrational behavior in financial markets and suggests that the price of securities is not completely determined by the intrinsic value of assets,and is largely influenced by investor behavior.Since the development of China's stock market,frequent plunging and sharpening has highlighted the irrational level of Chinese investors to a certain extent.The emotional changes of investors have played an important role in promoting stock market turmoil.In this context,this paper conducts an in-depth study on the measure of investor sentiment and its impact on stock returns.This study is helpful to understand the process and causes of investor sentiment changes,clarify the intrinsic characteristics of stock market price changes,and grasp the price fluctuations.The reaction of emotional changes.First of all,the domestic and foreign literature will be sorted out to construct a comprehensive emotional index.The domestic and foreign literatures have carried out a lot of research on the influence of investor sentiment on stock returns.Based on the relevant research status and theoretical basis,this paper analyzes and summarizes the domestic and foreign literatures in related fields,and clarifies the relevant theoretical models of investor sentiment and their The impact mechanism of stock returns provides a theoretical basis for the next empirical research.Combining the measurement of investment sentiment and the literature on the impact of investors on stock returns,it is found that most scholars usually use a single emotional index to study the relationship with income,so this paper chooses the method of establishing investor's comprehensive index suitable for China.Furthermore,the closed-end fund discount,IPO quantity and first-day earnings,trading volume,new investor account opening and consumer confidence index are selected as the basic indicators,while controlling consumer price index,industrial producer ex-factory price index,industrial production.The impact of macroeconomic factors such as value added and macroeconomic sentiment index,using multiple principal component analysis to construct the investor sentiment index.The comprehensive indicators of investor sentiment constructed by these direct and indirect indicators using dimensionality reduction methods not only reduce the dimension of the indicators,but also retain more objective information of investor sentiment.Secondly,the relationship between the investor sentiment index and the yield of the Shanghai Composite Index is discussed.Firstly,the ADF stability test is conducted on the investor sentiment index and the Shanghai Composite Index,and the logarithmic rate of return and the investor sentiment index time series after the first-order difference are selected as the research object.Then,the selected time series is Granger.Causal test,it is concluded that the change of investor sentiment is the Granger cause of the change of yield;then,in order to prove the initial relationship between the two,a VAR model with the investor sentiment composite index and the Shanghai Composite Index return rate as variables is established.After analyzing the validity of the model,impulse response analysis and variance decomposition are used to explore the relationship between them.The impulse response analysis reflects the interaction between investor sentiment and stock returns.The analysis of variance decomposition by shock effect shows that although the contribution of investor sentiment changes to yield changes is small,the short-term effects between variables will be longer.In the period,the cumulative effect is formed.Finally,the ARCH effect of the Shanghai Composite Index's return rate is verified,and the EGARCH model is used to study the influence of investor sentiment on the stock return volatility.The impact of pessimistic investor sentiment is Less than the impact of investor sentiment.Finally,it is concluded that investor sentiment is indeed an important factor affecting China's stock market returns,and reflects the irrational behavior of Chinese investors.According to the corresponding research results,the following policy recommendations are proposed: On the one hand,investors should cultivate and establish a rational investment concept and have a more effective and accurate understanding of market investment rules.On the other hand,relevant government regulatory authorities should provide scientific and feasible methods to measure and control investor sentiment,adopt strict regulatory strategies,and give investors effective guidance to promote the reform and further improvement of China's securities market.This paper enriches the content of investor sentiment and China's stock market,further analyzes the reasons for stock price fluctuations in China,and proves the theory of behavioral finance from the perspective of China's stock market.However,there are still many places in this paper that need to be further explored.In emerging markets such as China's stock market,fluctuations in investor sentiment may bring more uncertainty to the market.In the future,we need to improve investor sentiment indicators in information accuracy.Based on the availability and selection of network mining data,we will understand the specific impact size and objective law between the two changes.