Impact Of Investor Sentiment On Price Comovement

Along with the rapid expansion of asset markets,scholars gradually introduced investor sentiment into the research on the laws of the securities market price operation.Stock price comovement(also called as synchronicity)in financial markets usually means that the stock prices move in the same direction together in securities market.Since the beginning of the Chinese securities market,the market speculation is serious,for example,the prices of small-capitalization stock move following large-capitalization stocks and blue chips,and the phenomenon of stock prices in the industry moving together happens frequently.Morck etc(2000)finds that stock price comovement in Chinese securities market is in the second among the sample countries,just under the Poland.This paper discuss the impact of investor sentiment(individual investor sentiment and market investor sentiment)on the phenomenons of stock price comovement in Chinese securities market respectively from the perspective of the company size,industries.The following are the main research content of the thesis and empirical results.This paper summarizes the research of stock price comovement and investor sentiment firstly,improves DSSW model based on the conclusions of De Long etc.(1990)secondly,and the third part is analyzing the impact of investor sentiment on stock price comovement in inefficient financial markets.The thesis designs the way of stock price comovement which Learning from Roll(1988)and Morck etc.(2000)’s studies;there are two kinds of investor sentiment being discussed in the paper,individual stocks level and market level.Market investor sentiment is be constructed by principal component analysis method based Most of the representative Sentiment proxy variables,and use individual stocks trading volume and turnover as individual stocks investor sentiment.The empirical results show that:1)we conclude that investor sentiment have distinct negative effect on the stock price comovement,in addition to book-to-market ratio,firm size,ownership concentration,return on assets,leverage were negatively correlated with stock price comovement.2)For influence of investor sentiment on stock price comovement,individual stock level is bigger than that of market level.3)For impact on stock price comovement in different industries,no matter individual stocks trading volume or individual stocks turnover both have significant differences.4)Along with the increase of firm size,the impact of individual stocks level investor sentiment on stock price comovement is gradually reduced and increased on market level.5)In different market states,the impact of investor sentiment on stock price comovemen is different in all industries(different firm size),that is say investor sentiment has more effect on stock price comovement in bear market.In a word,introduce investor sentiment into the factors analysis of stock price comovement,improve the theory of noise trading and empirical test the impact of investor sentiment on Chinese securities market stock price comovement in different aspects is the innovation of this article.However the thesis also have some limitations and shortages,the first is the basic characteristics such as instability,sudden and communicability of investor sentiment lead to the subjective choice of sentiment proxy variables.secondly,the aurthor try to make theoretical explanation on the empirical results,but haven’t made the empirical.However that is also our future research direction.