Study On Effects Of Investor Sentiment On Arbitrage Pricing Of Macro Factors

Whether investors will be affected by sentiment when making a decision as well as whether investor sentiment affects stock returns, this problem has been the economist’s long-standing research interests. At least as early as Keynes(1936), a large number of authors believe that sentiment-driven investors can cause stock price deviate from its fundamental value. The traditional finance which regards the efficient market hypothesis as the core argue that this deviation can modified by the rational arbitrage in the market. However, when arbitrage is incomplete, the impact of sentiment on the stock price should not be underestimated.Based on the perspective of investor sentiment, this paper examines the relationship between investor sentiment and macro economy. Macro risk factors are systemic factors affecting stock returns in the stock, should be priced correctly in the cross-section of stock returns, that is, portfolios which are higher sensitive to macro factors should earn higher stock returns.First of all, this paper describes the research background and significance. Based on the domestic and international research literature, this paper proposes research questions, make hypotheses, draw the famework of this study.Secondly, select the closed-end fund discount, turnover, number of new accounts, the consumer confidence index, using principal component analysis to build investor sentiment index.Then, using Johansen cointegration analysis test the relationship between the macro risk factors and the Chinese stock market, construct dynamic long-short portfolio.Finally, this paper analyses the potential effects of investor sentiment on the pricing of macro-related risk factors.The results show that:1、all portfolios’ returns are higher following high sentiment than following low sentiment; 2、the return spreads between high-and low-risk portfolios are smaller following high sentiment than following low sentiment; 3、following high sentiment, high-risk portfolios have high returns than low-risk portfolios. Investor sentiment at least is an explanation to explain the insignificant price of macro-related risk factors. Take the change in investor sentiment as a risk factor, the empirical evidence shows that the factor is systemic risk which the stock market facing.