The Analysis Of Investor’s Attention On Stock Market Volatility And Its Application

Portfolio theory was built on the basis of the efficient market hypothesis and the capital asset pricing model, etc., which constitutes the basic framework of traditional financial theory. However, since the 1980 s, the emergence of various financial market anomalies makes the traditional finance questioned. Many scholars begin to study microcosmic financial markets- the decision-making behavior of individual investors from the perspective of psychological. Combined the theory of psychology with finance results in the appearance of a behavioral finance. From the progress of investors receiving information, processing information to making eventual decision-making, the basic psychology has been verified by many researches.In recent years, the research on the influence of investors’ attentions on the stock market has become a powerful tool to explain financial vision. With the rapid development of Internet technology, producing a large amount of information, which makes an already very limited investor attention more tense. Investors will allocate theirs limited attentions to the information they interested in the stock market, and the stock market will inevitably be affected. At the same time, because there are some irrational investors, who will cause the volatility to the stock market, so that the stock price cannot properly reflect its value.In this paper, Baidu index as a proxy for investors’ attentions, the relationship between the volatility and liquidity of the stock market and investors’ attentions has been studied, and the result has been applied to the risk management practice by the VaR measure. The result shows that a high degree of investors’ attentions will lead to higher stock market liquidity, and the liquidity of the stock market, in turn, will also have a positive impact on improving investors’ attentions; So there is a strong correlation consistency between the volatility of stock market and investors’ concerns. The enhance of investors’ attentions are accompanied with increased stock market volatility, and the increased stock market volatility also has a positive impact on the degree of investors’ concerns; Taking it into the conventional models will be benefit to improve the prediction accuracy. Thus, applying it to the risk management can help assess the risk of the stock market accurately.