Investor Sentiment,Stock Liquidity And Capital Structure

Investor sentiment is the cutting-edge research content of behavioral financial theory, and its fluctuation may affect the stock market and listed companies, another main component of stock market. The building of China’s stock market started in the late 90’s, and the market has experienced a number of "cold" and "high" wave in its development. As it started late, there are some lacks and problems in its level of development, ways of operations, supporting policies and so on. In the stock market, small and medium investors, known as "retail investors" are in the dominant position. As stock is a new investment product in China and the education on investors is not perfect, so investors are vulnerable to the market "noise", which will lead to irrational investment. The evolvement of individual behavior into group behavior will affect some aspects of the stock market such as liquidity and will cause some abnormalities such as bubbles. The fluctuations in the market will make listed companies adjust their decisions on financing, in order to reduce costs and improve efficiency of financing. So the passage will conduct empirical research to study the linkage mechanism between them.The article, through combining the theory analysis with empirical research analyzes the relationship between investor sentiment, stock liquidity and the structure of companies’ capital. The first part, by studying background, meaning and frame content, discusses the main opinions and specific content of the research through preface and empirical research. It also provides theory supporting for empirical research through stating the theory and bibliography which are essential to the research.The first part of empirical research, by introducing the way of constructing the sentiment indicators of Yi Zhigao and using six indicators--- closed-end fund discount, new accounts, consumer confidence index, market volume, market rate of return and price/earnings ratio constructs comprehensive indicator and calculates the specific index to provide data supporting to the last two empirical research. The second part of the empirical research analyzes the causal relationship between investor sentiment and stock liquidity. The Granger cause of investor sentiment and stock liquidity as well as the positive impact of the former on the latter can be concluded by Granger causality tests and impulse analysis. And then the research will find that the positive investor sentiment will enable companies to finance through stock market by using the regression equation in model one. The final part, through model two together with interaction studies the linkage mechanism of the three elements. The study shows that the better liquidity of the stock will make companies prefer to finance through stock with investor sentiment maintaining at a certain level. Furthermore, when investors have high sentiment and the stock liquidity is strong, the trend will be more obvious.The final part sums up all conclusions of the passage, which is granger cause of investor sentiment and stock liquidity as well as the positive impact, and positive investor sentiment to the capital structure, also the linkage mechanism of the three elements. In the end we give police suggestions and shows the shortcomings of the research.