| In the traditional finance, the investors in the reality are fully rational, the market is efficient, however, since the 1980s, there are more and more abnormal phenomenon which the traditional finance cannot explain, such as "The Calendar effect", "The Monday effect ","The Earnings announcement effect". This makes the behavior finance has become a research hotspot. Foreign research on behavioral finance started early, a large number of empirical data show that investors’sentiment is influential to the stock market. Compared to the developed countries, China’s stock market was established a short time, basically meet the two theoretical foundation of behavioral finance (the limited rationality and the limited arbitrage). Therefore, the study of the effect of investor sentiment on the stock market in China will have a great theoretical significance and practical significance.Before we study the impact, the most important thing is to carry out an effective measure of investors’ sentiment. Based on a large number of inspection and the summary of previous literature, combined with the actual situation in our country, this paper will choose six indicators from the numerous investors’ sentiment indicators. They are the turnover rate of market, the month to month number of new accounts, the closed-end fund discount rate, the rate of return on the first day, the volume of market and the good light index. And then builds the index of China’s investors’ sentiments after eliminating the macroeconomic factors with the use of principle cause analysis methods. The sample period from 2005 January to 2014 June, this paper studies the impact of investors’sentiment on A share market from two aspects:the overall effect of stock market returns and the stock returns cross-section effects of the different firm characteristics. According to the DSSW model, theoretical analysis shows that the investors’sentiment has a positive effect on the current A-share returns. Through the mood seesaw graph, we find that the stock who is more speculative will more easily affected by investors’sentiment. Research for the cross-section of stock returns effect, before the regression analysis, this paper constructs dynamic stock portfolio according to the characteristics of the company. By the non-parametric analysis, we can observe the level of the stock returns of the different characteristics of the company under the different emotional conditions. At last, through the empirical analysis, we test the seven hypothesis which are put forward by the theory analysis. Empirical results show: firstly, the investors’ sentiment has a positive effect on the A-share returns; Granger causality test show that investors’ sentiment can significantly affect the A-share returns, but the A-share returns’ influence on investor’s sentiment is unstable. Secondly, in the A-share market, compared to the low volatility of stock returns of stock, the high volatility of stock returns of stock is more sensitive to investors’sentiment; compared to the low book to market ratio of stock, the high book to market ratio of stock is more sensitive to investors’ sentiment; compared to the low asset-liability ratio of stock, the high asset-liability ratio of stock is more sensitive to investors’sentiment. The stock of the small company and the stock of the weak profitability is more sensitive to investors’ sentiment, however, the significant test failed in this study. But for the listing time, regardless of the listing time is long or short, these stock returns are not sensitive to the investors’ sentiment.Finally, based on the empirical results, this paper puts forward the following suggestions:on the one hand, the government and securities regulators should reduce the risk of policy on investors’ sentiment, reduce the excessive intervention on the stock market and give the right guidance at the right time. On the other hand, investors should strengthen learning, when they choose the investment portfolios, they should consider the market sentiment. |
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