An Empirical Study On The Influence Of Investor Sentiment On Stock Returns

Since the establishment of the Shanghai and Shenzhen Stock Exchange,the securities market has developed rapidly in China,but there is still a gap compared with mature markets in the west.Investors are often irrational and easy to be influenced by emotion.There are many irrational behaviors such as speculation,obedience and following the wind.The asymmetric information makes investors to over-pursue policy messages,grapevines,etc.,and they can easily produce cognitive bias when dealing the information.In addition,the lack of supervision makes the irrational emotion easily spread to the entire financial market,causing a substantial fluctuation in the market.The theory of traditional finance can't fully explain the situation of the stock market soaring and slump in China,but behavioral finance focuses on investors' psychology,and thinks that investor sentiment can better explain the actual operation of China's stock market.The study of investor sentiment can enable us to deeply realize the internal link between the fluctuations of investor sentiment in China's stock market and changes in stock returns,and further improve and optimize the Chinese securities market.This paper sorts out and summarizes academic literature on the definition and construction of investor sentiment and its relationship with stock returns in domestic and international academic circles.Based on it,this paper selects the monthly turnover rate,price-earnings ratio,trading volume,financing balance,newly established fund number,the AH share premium index and Chinese Securities Investor Confidence Index to construct an investor sentiment index,and verify the validity of it by examining the fit degree between the sentiment index and China's stock index.Then we study the relationship between investor sentiment and stock returns.One is the test of causality between investor sentiment and stock returns,and the other is the regression analysis of investor sentiment on stock returns,through the construction of single-factor regression models and investment The multi-factor regression model of emotions studies the impact of emotions on stock returns,and introduces a demonstrative function to test whether there is a difference in the impact of optimism and pessimism on stock returns.Third,build a buy holding strategy and buy sell Strategies are used to test whether investors can use the signal of investor sentiment index to make investors get higher returns.The result of research shows that there is a two-way causal relationship between investor sentiment and stock returns,and the current sentiment will have a significant positive impact on stock returns in the current period,and can be used to make a backward forecast of the stock returns in the next period.The sentiment is sticky;stock returns The contribution rate to the influence of investor sentiment is obviously greater than the contribution rate of investor sentiment to the influence of return rate.The change of sentiment has only a weak ability to interpret stock returns.After controlling three factors,investor sentiment can explain the stock returns in China well.The four-factor model containing the emotional factors is effective;compared with optimistic sentiment,the positive influence of investor pessimistic sentiment on stock returns over the same period is more significant.To determine the timing of buying and selling shares based on investor sentiment,can improve the rate of return of stocks,small-cap stocks,high book value stocks and penny stocks more sensitive to investor sentiment.In a word,investor sentiment will have an important impact on China's stock returns.In view of the investor sentiment in the market,our government and regulators should further establish and improve the regulatory system of China's securities market so as to make information more open and transparent,they should encourage and develop institutional investors,guide investors to invest rationally,reduce investors' irrational emotions,guard against risks,and promote the standardized development of the securities market.