Construction And Application Of Investor Sentiment Index Based On Baidu Index

Under the Hypothesis of Economic Man and EMH,traditional financial theory has been unable to explain many abnormal financial phenomena.Different emotional states lead limited rational investors to form cognitive bias of market risk.So Behavioral Finance has came into being.With the explosive development of Internet technology,search engine data which can reflect users' concerns and intentions are widely used in various social scientific research.Therefore,the paper starts with Baidu Index to construct a comprehensive index of investor sentiment,and then applies it in the field of quantitative investment.First of all,according to the existing literature and Baidu Index related search word,the paper determines the keyword thesaurus,crawls the data,and constructs search heat index to eliminate the natural growth of search volume caused by the rapid development of Internet.Secondly,it can get more important keywords by calculating the crosscorrelation coefficient,and use the random forest algorithm to rank the importance of keywords.Thirdly,the paper uses principal component analysis to build a leading investor public opinion index.It selects the consumer price index and macroeconomic prosperity index as agent variables of macro information,and combines with three emotion proxy indexes,consumer confidence index,the number of new investors and trading volume,to construct a comprehensive index of investor sentiment.Then the paper verifies its explanatory effect on stock market returns.Finally,according to the risk area formed by the index,it develops an emotion timing strategy based on inertia effect,and carries out quantitative simulation.The results show that the investor sentiment composite index based on Baidu Index has a significant correlation with Shanghai Composite Index,and it is consistent with the trend of China's stock market.Compared with the model not included in the public opinion index of investors,this index has a stronger explanatory power to the stock market returns.In addition,the application of the index in the field of quantitative investment can effectively reduce the overall risk of the portfolio,control the lower bound of the portfolio return,and obtain stable annual return.Therefore,the dynamic monitoring mechanism of investor sentiment can be established to strengthen the management of China's financial market,improve the stock market environment and the investment mechanism.