Research On The Effect Of Investor Sentiment On Stock Return

The research on stock return and asset pricing based on multi factor model has always been a hot topic in the financial academic field.A large number of scholars have constructed multi factor model based on the fundamental factors of the company to conduct empirical tests and achieved fruitful results.However,market anomalies frequently appear,and the traditional efficient market theory and rational investors'assumptions are often inconsistent with reality.Therefore,more and more scholars add behavioral finance theory to asset pricing model,mining new factors based on behavior and sentiment,and explore the impact of investor sentiment on stock returns.This paper uses the method of theoretical analysis and empirical research.In the part of theoretical analysis,the definition of investor sentiment is given,and the research status of sentiment and multi factor model at home and abroad is reviewed.It is found that the focus of domestic discussion on the five factor model is whether the profit factor(2 and investment factorare applicable,and there is no empirical test of the five factor model about investor sentiment.Therefore,in the part of empirical research,firstly,we selects six basic indexes:ICI,VOL,TOR,PE,NEWA and BD to build.Then we study the relationship between investor sentiment and Shanghai stock index,and draw the conclusion that investor sentiment and Shanghai stock index are Granger's reasons,and find that investor sentiment in the current period will have a significant positive impact on Shanghai stock index.Next,the paper constructs five factors in the traditional Fama French five factor model:market factor₈),scale factor,valuation factor,profit factor(2 and investment factor,and constructs 25 house asset portfolio as the dependent variable to be regressed.When testing the applicability of each factor,it is found that the investment factoris not suitable for China's A-share market,andcontains information that cannot be explained by other factors.Therefore,is removed andis added to test the effectiveness of the multi factor model.The results show that the multi factor model withexplains almost all excess returns in China's A-share market,and the new model is better than the traditional five factor model.,the investor sentiment factor,has a significant explanatory power on some specific stocks,such as low market value stocks and high profitability stocks.This paper innovatively introduces investor sentiment into the five factor model,integrates the traditional and behavioral finance theories,and more comprehensively studies the influence of market factors and company fundamentals including sentiment on stock returns,which makes the fundamental analysis and technical analysis complement each other,and widens the current domestic research field of investor sentiment and the five factor model.In theory,the results of this paper show that the future multi factor model should not only consider the influence of market and fundamental factors,but also the investor sentiment factors.In practical application,the results of this paper provide a new idea for A-share market multi factor stock selection decision-making,adding investor sentiment factor multi factor pricing model will be more effective.