Empirical Study On Investor Sentiment And Stock Price Behavior

As a non-rational factor,investor sentiment affects stock price behavior.In this paper,we regard investor sentiment as a common factor of many trading results and build a sentiment index based on factor analysis upon seven typical A-stock market proxies,using monthly data from 2010 to 2018.We then use regressions to test whether sentiment index accounts for or even predicts any stock price behavior.Sentiment has significant impact on PE ratio changes in current but not the following period,while the impact gets more notable in CSI 300,CSI 500,SME and GEM board successively.Single sentiment will not predict PE ratio changes,but it interacts with expectation of corporate profits in GEM board: the valuation tends to be stretched in the next period when sentiment goes higher.When investor sentiment increases,small stocks and low-volatility stocks tend to earn more in both current and the following period.The return gap between stocks of middle and low classed sales growth would be wider significantly as well.Operating cash flow to net income ratio is not sensitive to sentiment index.We discussed details from proxy choosing and econometrics methodology to application of investor sentiment index in A-stock market,and finally drew some reference for investment decision-making.