The Impact Of Investor Sentiment On Stock Market Yield And Volatility In China

As a dynamic system with investors’ stock trading activities as the core,the stock market is formed by the continuous flow of funds and information exchange between the stock market participants and the internal and external environment in a certain space and time area.In addition to national policies,economic fundamentals and other factors that affect stock market volatility,investor sentiment is also an important factor.With the continuous development of behavioral finance in recent years,investor sentiment has always been the key point of behavioral finance.Although some scholars have begun to notice the existence of investor sentiment in the stock market,the research on it has not yet formed a system and the research on some issues has not well combined with the characteristics of China’s securities market.At present,the understanding of behavioral finance is still in its infancy,and there are still some problems such as news market,policy market and so on.Compared with traditional finance,behavioral finance is more suitable to analyze our stock market.By further deepening the research on investor sentiment,it can not only help investors better understand their subjective emotions,re-examine and make reasonable investment decisions,but also avoid the large fluctuations of the stock market to a certain extent.Therefore,this paper studies the impact of investor sentiment on Chinese stock market from the perspective of behavioral finance.Firstly,by combing and referring to the research of domestic and foreign scholars on investor sentiment,this paper selects four indicators of market turnover rate(TURN),price earnings ratio(APE),margin lending ratio(MSR)and margin turnover ratio(ADR)as proxy variables of investor sentiment,and uses principal component analysis to construct a comprehensive index of investor sentiment.Then the empirical research method is used to study the effect of investor sentiment on stock market yield and stock market volatility.In the empirical process,this paper adopts the combination of the whole market and the market segment.In this paper,the Shanghai Composite Index as a representative to study the impact of investor sentiment on the overall market yield and volatility;Secondly,the overall market is divided into different types of stock markets by Shen-Wan style index classification standard to study the impact of investor sentiment on the return volatility of market segments.In addition,this paper also uses Dow theory to divide the market into bull and bear markets to study the impact of investor sentiment under different market conditions on the return volatility of corresponding stock markets.In addition,when studying the influence of investor sentiment on the return rate of Chinese stock market,this paper also tests the interpretation of Fama-French factor model and multi-factor model after adding investor sentiment on the overall market return rate,market segment return rate and market return rate under different market conditions.Finally,in order to ensure the prudence and reliability of the study,a robustness test is conducted to study and analyze whether investor sentiment can explain the changes in the return rate and volatility of CSI 300 index.The research shows that,for the overall market,investor sentiment has a significant impact on the stock market yield and volatility,but investor sentiment in different periods has different effects on the stock market yield,and there is a significant negative correlation between investor sentiment in the current period and the SSE composite index yield.There is a significant positive relationship between investor sentiment and the return rate of Shanghai Composite Index.The increase of investor sentiment will lead to the increase of stock price volatility.Similarly,the influence of investor sentiment on market returns and volatility still exists in the market segments of stocks.However,under different market conditions,investor sentiment has a significant positive impact on bull market returns,and the increase of investor sentiment will aggravate the volatility of bull market stock prices.However,the influence of investor sentiment on bear market yield and volatility is not significant,indicating that the influence of investor sentiment on index yield and volatility is asymmetric in different market environments.All in all,investor sentiment is one of the important factors affecting the yield and volatility of our stock market.As a large and complex ecological system,its internal factors are related to each other.Therefore,in order to ensure the smooth operation of the stock market in our country,the government should start from the overall perspective,systemize the supervision of the stock market and strengthen the information supervision of new media platforms and the popularization of professional knowledge of the market investors,guide the rational investment and the value investment,etc.This reduces the disruption of the stock market caused by fluctuations in investor sentiment.