An Empirical Study Of The Six-factor Model Based On Emotional Factors In Chinese A-share Market

From Fama-French(1993)three-factor model to Daniel-Hirshleifer-Sun(2020)three-factor model,factor pricing theory has experienced rapid development for 30 years.From a single consideration of market risk,to the new attempt to apply behavioral finance to asset pricing today,capital asset pricing model has made considerable progress,and still maintains a strong vitality.In theory,however,the Fama-French model and its extension are both price models based on investor rationality,thus ignoring the influence of irrational pricing factors on yield.In recent years,we have experienced the bloodiest stock disaster ever in China’s capital market in 2015,and also the two-Thursday meltdown of the US stock market under the new coronary pneumonia epidemic.Market emergencies often cause investors to panic and distort the traditional pricing mechanism.Especially in the case of a large number of Chinese A-share retail investors,the impact of irrational factors on stock price fluctuations cannot be ignored.In order to measure investor sentiment more scientifically and comprehensively,this paper builds emotional factors(SENT)by choosing six proxy indicators: the average discount rate of closed-end funds last month,the market turnover rate last month,the number of IPOs,the number of new accounts opened,the average return on the first day of IPOs,and consumer confidence.In the selection of sample data,this paper intercepts the data of A-share listed companies in China from January 2012 to April 222 as a sample,introduces emotional factors as a new pricing factor into the Fama-French five-factor model to get a six-factor model,in order to study the performance of investor sentiment in the A-share market,and try to make up for the lack of explanatory power of the original pricing model on irrational factors,so as to improve the explanatory power of the model in the A-share market.In the empirical study,the main conclusions are as follows:(1)In the time series regression of the Fama-French five-factor model,we find that market factors and scale factors as traditional style factors still show great vitality in the empirical interval,and the scale effect is still significant in A-share market;Although the performance of investment factors and profitability factors is not as good as market factors and scale factors,their contribution to the model should not be underestimated and should not be treated as redundancy factors,among which value factors perform the worst.The model fits the A-share market yield well as a whole.(2)Emotional factors as a new immature factor,from the overall regression results,their ability to interpret excess return is not as good as the traditional five factors,which shows that there is still a long way to explore the irrational pricing factors in academia.Nevertheless,the contribution of emotional factors based on PCA to the model can not be ignored.The results of GRS test and time series regression test show that introducing emotional factors into the model as pricing factors significantly improves the explanatory power of the original five-factor model on yield.On the whole,investor sentiment shows a positive correlation with market excess return.Optimistic investor sentiment drives stock price up,and the decrease of investor’s enthusiasm for investing and trading causes stock price to fall,which leads to a decrease in return.The higher the investor sentiment,the stronger the impact on excess returns,which also reflects to some extent the herd effect that may exist in the market.Changes in investor sentiment have a greater impact on the intermediate market value than the two extremes,and investors prefer the intermediate market value stocks.