Research On The Interaction Between Investor Sentiment And The Volatility Of My Country's Stock Market Returns

Finance is a Significant driving force for the development of modern economy,and the stock market as a direct financing carrier plays a major role in the financial market.The stable operation of the stock market is not only conducive to protecting the rights and interests of investors,but also an important support for the high-quality development of the national economy.Since China's stock market was developed,it has achieved remarkable achievements after more than 20 years of rapid development.However,due to the short development time of the stock market,the immature market participants,and the imperfect regulatory mechanism,the stock market has experienced frequent and violent declines.Particularly in 2008 and 2015,China's stock market has experienced several extreme fluctuations.“Thousands of daily limit-up” and “thousands of stocks limit-down” have caused huge losses to listed companies and investors,and have also seriously damaged the stock market financing mechanism and the development of the real economy.Traditional financial theory holds that investors are “rational people”,and this bias will be corrected immediately when the market fluctuates the price deviation from value.Since the end of the 1970 s,there have been many strange phenomena in the financial market that were discrepant for traditional financial theories.As these phenomena,from the perspective of psychology and sociology,behavioral finance studies the psychological characteristics and decisionmaking behavior of investors in the process of participating in the market,and forms a relatively complete theoretical system.From the perspective of behavioral finance theory,this paper researches the volatility of China's stock market,and analyzes the emotional characteristics of investors' participation in the stock market and the relationship and mechanism with China's stock market returns and volatility.On the achievements of the research results of predecessors,this paper analyzes the relationship between investor sentiment and stock market returns and volatility,and constructs the investor sentiment comprehensive index by principal component analysis method,using vector autoregressive model to investor sentiment.Developed an empirical research on causality,impact mechanism and dynamic effects between stock market returns and volatility.The research shows that: First,there is a two-side Granger causal relationship between investor sentiment changes and stock market returns.Investor sentiment is the Granger cause of stock market volatility,but stock market volatility is not the Granger cause of investor sentiment changes.Second,investor sentiment has a positive impact on stock market returns in the short term,and then this effect will quickly turn into a negative direction,while stock market returns will positively expand investor sentiment in the short term,and then the impact will gradually fade.Third,investor sentiment has a relatively significant role in promoting stock market volatility in the short term.This effect has quickly subsided after a period of time,but stock market volatility has not significantly affected investor sentiment.In the end of the research,the author puts forward relevant suggestions for improvement and improvement from the perspective of investors and regulatory agencies,which has certain reference significance for the healthy development of Chinese stock market.