A Study Of The Relationship Of Individual Investor Sentiment And Shanghai Securities Composite Index

Finance is the core of modern economy. If there is something wrong with the core, it will influence macroeconomic. Although financial risk in our country is manageable, but turmoil the stock market frequently occurred in recent years. This means the fragility of financial system. Our country is in the throes of structural adjustment, the development of the securities market has a great significance to comprehensive reform. As individual investors increased rapidly, they are bound to become an important factor of asset market.When the sentiment of market has been fried to an unsustainable level, it comes to be "irrational exuberance". Theory of behavioral finance has successfully explain the abnormal phenomenon of market by studying the psychology and behavior of investors, and the theory of investor sentiment has developed into an important aspect of behavioral finance research.The past research of investor sentiment focused on the overall aspect, this paper is pike the individual investor sentiment as the breakthrough point in the analysis of investor sentiment.Research of Individual investor sentiment contributes to understanding how the behavior of individual investors affects the stock market, helps individual investors to get a better understanding of the securities market, helps regulators to create a healthy, active stock market environment.A key point of this paper is how to measure individual investor sentiment, all kinds of domestic and foreign scholars have put forward and verified directly or indirectly measure,but these indicators have certain defects. This article selects four variables, including the new account number of individual investors, average P/E ratio, turnover rate and the index of investor confidence. Then we use the principal component analysis to build the composite index of individual investor sentiment. The empirical analysis consists of the VAR model of Shanghai composite index and individual investor sentiment and a series of analysis.In the construction of index of individual investor sentiment, we can find that the trend is similar with Shanghai composite index, it means that the index of individual investor sentiment is a relatively reasonable one. Comparing coefficient absolute value in the VAR equation, we found that in lagging equation of the Shanghai composite index, the influence ofthe individual investor sentiment on the Shanghai composite index is greater than the Shanghai composite index itself. In the impulse response function, we find that the influence of individual investor sentiment on the securities market of our country has a long lag. In the variance decomposition part, we found that changes of individual investor sentiment in the variance are more complex than changes of Shanghai composite index in the variance. There exists an asymmetry granger causality relationship between the Shanghai composite index and individual investor sentiment.