The Impact Of Investor Sentiment And Stock Market Returns

The effective market hypothesis of traditional finance and the rational human hypothesis provide a very important foundation for us to study financial theory to explain financial phenomena,but the market is not rational.At present,traditional financial theory has been difficult to explain the vision of many financial asset pricing.The rise of behavioral finance is the combination of finance,psychology and behavior,explaining the financial visions appearing in the market.Therefore,this thesis starts with the theory of noise trading in classical behavioral finance,and theoretically infers the specific performance of investors affected by emotions in the stock market.Then,based on the actual situation of China’s stock market,constructs investor sentiment index ?,and finally Empirical analysis is used to verify the interactionbetween investor sentiment and stock market returns.This paper mainly draws the following research results:First,through the combing of the past literature,this paper understands the different fields and concepts involved in traditional finance and behavioral finance.Through the study and summary of the theoretical part,the theoretical basis of investor sentiment is clarified.Empirical research is paving the way.Second,according to the particularity of China’s stock market,choose a set of appropriate emotional indicators,and use principal component analysis to construct the core investor sentiment ?.Third,investor sentiment has a positive impact on stock market returns,while emotional indicators that lag behind four periods will have a reversal effect.At the same time,investor sentiment has a stronger impact on small caps and mid-cap stocks.In the current period,investor sentiment is more prominent in the high-scoring point than in the low-score,while the most significant regression coefficient in the lag period is at the high-scoring and low-scoring points.Revenue is highly correlated with current investor sentiment.Large-cap stocks have the greatest impact on investor sentiment.Through the above empirical results,the mutual influence of investor sentiment on stock market returns is demonstrated.