The Relationship Between Investor Sentiment And Stock Market Returns In China Context

In the reality of economic activities,many market participants usually rely on their own information and subjective judgment in investment.The irrational factors of investors could cause financial investment tend to be more subjective and non-assertive,which more and more difficult to interpret by classic economics.Therefore,the modern scholars founded the behavioral finance to explain such impact of irrational factors of investment behaviors.They did lots of research on the Relationship between investor's sentiment and behavior.The behavioral finance focuses on the impact of investor sentiment on the investment behavior,so many studies try to build the investor sentiment index.Western scholars have done a lot of research on investor sentiment index.On the contrary,Chinese scholars seldom use the investor sentiment index about A-share stock.Actually,constructing the A-share market investor sentiment index to show investor sentiment is much important to the study of behavioral finance market in China.Moreover,it is also useful for study on the relationship between on the investor sentiment and the volatility of stock market returns.In 2010,the China stock market formally started up the Margin Trading.It ended up the unilateral operation of in the A-share market over years.In recent years,it is developing very rapidly.It depends on investor sentiment and views about the future direction of the stock market in margin trading,which means the margin could reflects on investors' optimism or pessimism in the stock market.Consequently,related indicators of margin trading can be used to study as the structural factors of the investor sentiment index.This dissertation uses the methodology of Criteria Importance Though Intercrieria Correlation(CRITIC)to construct a investor sentiment of RISI.The RISI is based on4 indicators of margin trading,which include the balance of margin Purchase,the balance of Short Selling,the margin purchase value and the ratio of margin transactions to the total transaction of A-share,etc.Through empirical method of VAR estimation model,it verifies that there is a significant relationship between the RISI and stock yield of A-share market.Through the analysis,it also finds that A-share market investors have obvious irrational characteristics in short-term.Furthermore,with the study of this dissertation,it shows that the mechanism of price discovery in A-share market cannot timely reflect on the change of investors' sentiment.Because of insufficiency of stable market returns,the stock market infrastructure needs to be further strengthened.Finally,this dissertation puts forward a proposal to strengthen the research of behavioral finance and to improve the margin trading business for the perspective of investors,researchers and regulators.