Research On The Impact Of Investor Sentiment On The Herding Effect In China's Stock Marke

The 2022 Central Economic Work Conference once again emphasized on the issue of financial development,"effectively prevent and resolve major economic and financial risks,and firmly hold the bottom line of preventing systemic risks." As the "barometer" of economic and financial development,the stock market’s healthy development is of great significance for preventing major financial risks.Chinese stock market is an emerging market developed in a transitional economy.There are many retail investors in the stock market,and their behavior is easily affected by sentiment.Therefore,both the institutional and the market environment can easily lead to herd behavior.Herding behavior will hinder the rapid reflection of valuable private information in stock prices,thus reducing the information transparency and pricing efficiency of the capital market,which may increase the systemic risk of the market and accelerate the formation and collapse of the stock market bubble.The existing researches on herd effect mainly focus on the A-share and B-share markets,and there are few researches on other types of markets.This paper examines the herd effect of the SSE 50 index constituent stock market,which is dominated by large-cap blue-chip stocks,and constructs investor sentiment indicators with the help of forward-looking information in the option market to study the impact of investor sentiment on the stock market herd effect,in order to provide some enlightenment for policy makers.This paper studies the influence of investor sentiment on herd effect in the stock market from static and dynamic two dimensions.The specific research ideas are as follows: First,establish a static model to verify whether there is herd effect in the Shanghai 50 Index component market,and distinguish rising and falling markets to test the asymmetry of herd effect;Secondly,the implied information of the option market is related to the herd effect of the stock market,and the implied volatility spread of the SSE 50 ETF option is adopted as the investor sentiment index and introduced into the static model to further verify the influence of investor sentiment on the herd effect of the stock market.The empirical results show that there is a significant herding effect among the constituent stocks of the SSE 50 index,and the market is asymmetrical in two states of rising and falling.Compared with the herd effect in the rising state,the herd behavior of investors is more significant when the market is in the falling state.Investor sentiment will affect the herd behavior of the Shanghai 50 Index stocks.Positive investor sentiment will enhance the herd behavior,while negative investor sentiment will weaken the herd behavior.The effect is also asymmetric in rising and falling markets.Investor sentiment influences herd behaviour more in rising markets than in falling ones.Then,the classical static CCK model is developed into a dynamic model using complex network technology,and the dynamic relationship between the herd effect and investor sentiment is studied.By constructing a coarse-graining complex network model,a complex network between investor sentiment and herd effect is established,and the dynamic relationship between the two is analyzed with the help of complex network topology indicators.The results show that the relationship between investor sentiment and herding in my country’s stock market is dynamic.In the long run,there is a negative correlation between investor sentiment and herding.In the short term,the relationship between the two will change dynamically between positive and negative correlations.And the relationship between the two is cyclical.After about8 to 9 days,the relationship between the two will change.This feature is consistent with the characteristics that there are more retail investors in China’s stock market and the trading behavior is more frequent.In addition,in the established complex network,the identification of nodes with large betweenness indicates that the relationship between them will change.This feature has important reference significance for predicting the occurrence of herd effect in the future stock market.Based on the above research,this paper argues that the regulatory authorities should strengthen the education of investors’ value investment and rational investment concept,encourage investors to make scientific investment from the perspective of value,reduce the influence of investor sentiment on investment decisions,and alleviate the herd effect of Chinese stock market.Most importantly,relevant regulatory authorities can forecast and monitor the occurrence and intensity changes of the herd effect in China’s stock market with the help of the cyclical characteristics obtained in this paper,so as to provide reference for policy makers.