The Impect Of Investor Sentiment On The Returns Of Futures Market

Standard finance has been widely questioned because of its internal contradictions and it can not explain a lot of abnormal market phenomenon. Prospect theory as a decision-making model with complex psychological effects of bounded rationality assumptions more in line with scholars’ agree. Behavioral finance which established on the basis of bounded rationality assumptions has launched an effective challenge to the standard finance. The researches on investor behavior and psychology have given explanations of many financial anomalies which standard finance can not explain. Investor sentiment as an important indicator of psychology becomes a hot topic of behavioral finance. Domestic and foreign scholars are mainly concentrated on the investor sentiment of stock market, but the investor sentiment of futures market is rarely involved. This paper is based on the researches of domestic and foreign scholars on the investor sentiment of stock market and constructs an investor sentiment index which measuring the investor sentiment of futures market. Contemporary, this paper analyzes the relationship between investor sentiment and the returns of futures market.This paper uses the open positions of large investors as a proxy variable to measure the investor sentiment of futures market. We use vector auto regression model, pulse response functions and Granger causality test to analyze the relationship between investor sentiment and returns. We find that the impact of investor sentiment on the returns of futures market is significant in short term, but the returns do not affect investor sentiment. Short term refers to four and five months and the impact is reversed. In other words, investor sentiment reverse forecast two months later returns. However, investor sentiment does not affect returns on the long term. In addition, we also found that investor sentiment does not Granger cause returns and returns do not Granger cause investor sentiment, too.