Investor Sentiment,Limited Attention And Stock Returns

With the development of the stock market,the efficient market hypothesis and the rational investor hypothesis in traditional finance gradually fail to explain the frequent anomalies in the financial market.With the introduction of behavioral finance,economists began to study from the psychological perspective,such as the psychology and behavior of investors.The difference of personal attention or the variation of emotion will affect the stock return to some extent,and the variation of individual emotion can further affect the relationship between limited attention and stock return in the financial market.In the financial market,if we can not clarify the transmission mechanism of investor sentiment,the impact of limited attention on stock return and analyze the impact path between the three will inevitably lead to cognitive bias and affect the financial market.Based on the analysis of investor sentiment and limited attention theory,this article introduces the connections between investor sentiment,limited attention and stock returns and presents the relevant research hypotheses.Finally,it uses fixed effect model and threshold model respectively to explore the impact of investor sentiment and limited attention on stock returns and the different impact of investor attention on stock returns under different emotions,Specifically,there are the following innovative research results:At first,we analyzed the impact of investor mood and limited attention on stock returns by establishing a fixed-effects model and examined the nonlinear relations between them.The results showed that there is a positive relations among investor mood,limited attention and stock returns,but the performance of the lags is not the same.Compared with limited attention,the reversal effect of investor sentiment on stock returns is more rapid,which also reflects that investor sentiment is more vulnerable to external attributes.Secondly,in order to study the impact of investor sentiment and limited attention on stock returns,the interactive term of dummy variables of investor sentiment and limited attention is introduced.The study found that investor sentiment may have a certain impact between limited attention and stock returns;Finally,in order to further analyze the impact of emotional attributes on investor attention and stock returns,this paper constructs a threshold model with investor emotion as the threshold variable,limited attention as the core explanatory variable and stock returns as the explained variable,and finds that different individual emotions will have different effects on the relationship between limited attention and stock returns.Specifically,when investor sentiment is relatively positive,there will be a positive correlation between investor attention and stock returns;When investors are more reasonable,variations in investor concerns have no significant impact on stock returns;When investor sentiment is relatively negative,at this point there is a negative association between investor attention and stock returns.That is,stocks with lower individual attention perform better in stock returns.The research on investor sentiment,limited attention and stock returns in this paper is different from the previous scholars who only study the relationship between investor sentiment,limited attention and stock returns.The research results can further promote the supervision of government departments on the financial market and reduce the interference of irrational factors on the financial market.