Research On The Impact Of Investor Sentiment On Stock Market Returns Under The Background Of The COVID-19 Pandemi

As one of the major public health emergencies in the 21 st century,the COVID-19,which began in 2019,has had a huge impact on the global financial market,and China’s stock market has been affected without exception.On the first day of market opening after the Chinese New Year in 2020,major stock indices in China plummeted,with the Shanghai and Shenzhen 300 stock indices alone falling by7.88%.However,in the short term,there was an abnormal trend of stock market recovery.Most of the participants in China’s stock market are individual investors,and irrational investment behavior can easily lead to negative news and public opinion,leading to emotional fluctuations.According to relevant theories such as behavioral finance,investor sentiment can effectively explain the problem of stock market return volatility.Therefore,this paper conducts research on the correlation between investor sentiment and stock market returns based on the realistic background,and explores the relationship between investor sentiment and stock market returns in the context of the COVID-19 epidemic,so that investors can adopt more rational investment strategies and help the market supervision department take necessary measures to stabilize the stock market when investors’ sentiment fluctuates violently.This paper first establishes a vector autoregressive model to study the correlation between investor sentiment and the index returns of three different market values,namely,CSI 300,CSI 100 and CSI 500,before and after the COVID-19 epidemic,including the causal relationship,impact effect and contribution degree between investor sentiment and stock index returns.On this basis,a conditional heteroscedasticity model is established to study the impact of investor sentiment in different states on the yield of the CSI 300 stock index under the background of the COVID-19,explore the impact of investor sentiment in different states on the yield of the stock index,and test whether the impact of different emotional states on the yield of the stock index is asymmetric The way in which the CSI 100 stock index returns replace the CSI 300 stock index returns tests the robustness of the model.Specifically,this article starts by summarizing relevant domestic and foreign literature on investor sentiment theory,clarifying the definition of investor sentiment and listing its three commonly used measurement methods.Next,a total of 1120 daily data were selected from January 2,2018 to August 12,2022.Four indicators,namely turnover rate,price to earnings ratio,price to book ratio,and stock price to price ratio,as well as their respective lagged variables,were used as investor sentiment proxy indicators.Principal component analysis was used to reduce the dimensionality of the sentiment proxy indicators and construct an investor sentiment comprehensive index;Select the closing prices of the CSI 300,CSI 100,and CSI 500 indices as the research objects for stock returns.The research results indicate that(1)investor sentiment is a good indicator of changes in stock market returns.The investor sentiment composite index has a significant positive correlation with the returns of the three stock indices.(2)There is a two-way interactive relationship between investor sentiment and stock index returns,with investor sentiment having a greater impact on the returns of small and medium-sized stocks and a smaller impact on the returns of large cap stocks.(3)In the context of the COVID-19,optimistic investor sentiment can promote the rise of the overall stock market returns,while pessimism will trigger the decline of stock market returns.The fluctuation of investor sentiment with different characteristics has a positive asymmetric effect on the volatility of stock market returns,and the impact of optimistic sentiment on stock returns in the market is much greater than that of negative sentiment.