Investor Sentiment On Stock Return Volatility Empirical Study

China’s stock market development time is limited, compared to mature markets andforeign market risks still exist, such as unreasonable structure of investors some of thefeatures. Investor sentiment is reflected in investor psychology is an important factor,according to the theory of managerial economics, investor sentiment on the stockmarket have a certain impact, the study of investor sentiment and stock market volatilityrelationship becomes very important. Some economists believe that classical theoryassumptions about perfectly rational investor behavior is incorrect, the actualinvestment decisions from their starting psychological investors pay more attention tothe most important economic market participant investor psychological factors thatinvestors the emotional impact on the market. Chinese stock market, there had beensome huge fluctuations, fluctuations in the stock markets of these systemic changes ininvestor sentiment on the stock market volatility if there is a different effect on theworth our study. And in our research in this area is also unusual, with some innovative.This paper presents the background and significance, then this article relatedresearch conducted a literature review, through the introduction of existing research athome and abroad, in-depth understanding of investor sentiment related to the researchresults, on this basis of these studies this article is reviewed and proposed researchideas, and describes the structure of this article. After the proposed definitions andcategories of investor sentiment, investor sentiment can be divided into three types:dominant investor sentiment, investor sentiment and emotions hidden proxy variables.Then analyzes the generation of investor sentiment and market analysis of the impact ofinvestor sentiment on the mechanism. For the construction of China ’s securities marketinvestor sentiment index, this article describes the current situation of China’s stockmarket, presents characteristics of investor sentiment. Then according to the actualsituation of China’s securities market, chose six investor sentiment proxy variables:closed-end fund discount rate, the average turnover rate in Shanghai and Shenzhen,IPO first-day returns, IPO issue number, the new A-share accounts, the consumer confidence index, and use these six principal component analysis to build investorsentiment proxy variables become investor sentiment index. Finally through theestablishment of an empirical model to study the investor sentiment on the stock marketgains fluctuations. Through empirical analysis, the following conclusions: closed-endfund discount rate and stock market gains were positively correlated; Shanghai andShenzhen stock market returns with the average turnover rate was positively correlated;IPO issue number and stock market returns were positively correlated; stock first dayof the return and stock market returns were positively correlated; consumer confidenceindex and the stock market gains were positively correlated; new A-share accounts andstock market gains were positively correlated; six variables in investor sentiment andstock market systematic risk of the formation of positive related. Finally, based on asummary of the full text, put forward relevant proposals and identify the shortcomingsof this article.