The Aggregation Effect Based On Investor Sentiment And Asset Pricing

This paper reconsiders the influence of investor sentiment to market price from the degree of aggregation effect,and makes up the defects of existing literatures on aggregation effect of investor sentiment.In the existing papers of behavioral finance,researchers focus more on the aggregation of noise rather than of investor sentiment.Based on the difference between noise and investor sentiment,study on the aggregation of investor sentiment can be more accurate to exhibit the influence of investor sentiment in asset pricing,and it will give a partial explanation of financial anomalies from the view of empirical.This paper constructed an asset pricing model to study the effect of investor sentiment and volatility of sentiment in asset pricing under aggregation effect,and we find that both investor sentiment and volatility of investor sentiment systematically affect the equilibrium price.Our results show that the higher investor sentiment or the higher volatility of investor sentiment results in the higher equilibrium price.After the simulation of static and dynamic model,we use data of SSE50 to empirically examine the aggregation effect of investor sentiment on stock price.The empirical results are consistent with our model.Our findings could explain the asymmetric effect of the investor sentiment that the optimistic investor sentiment has more significant impacts on stock price than pessimistic investor sentiment.Our results help to understand the irrational phenomena in financial market that the aggregation of investor sentiment is a source of mispricing.This kind of mispricing consists of the mispricing from investor sentiment itself and the mispricing from volatility of investor sentiment.In the case of severe volatility,the deviation of price caused by volatility of investor sentiment can be greater than that caused by sentiment itself.This conclusion can give the market supervisors a theory support to take measures to make investor sentiment and market expectation be stable.