Empirical Study Of The Fama-French Factor Model Based On Investor Sentiment

In March 2020,due to a global outbreak of new coronaviruses and a sharp drop in international oil prices,investors became panicked,causing sharp fluctuations in global financial markets and sharp declines in the stock market,which seriously jeopardized the stability of financial markets.This article studies the impact of investor sentiment on portfolio returns based on the Fama-French three-factor model,allowing investors to more clearly understand the impact of investor sentiment on the market,reduce market irrational behavior,and promote the orderly operation of China's stock market.healthy growth.The Fama-French three-factor model is an important research result in the field of asset pricing and has been widely used worldwide.With the improvement and development of the capital market,scholars have begun to study the Fama-French three-factor model by adding new factors to improve the interpretation ability of the model.Among them,behavioral finance believes that investors will be affected by the market and their emotions when making decisions.Investor sentiment is an important factor affecting the stock market and stock prices.First,this article uses principal component analysis to construct an investor sentiment index.Then,the Fama-French three-factor model is constructed using the stock trading data of the Shanghai Stock A for the past 10 years,the emotion factor is introduced to obtain the four-factor model,and the validity of the Fama-French three-factor model and the four-factor model is empirically tested by regression analysis.The empirical study found that:(1)the Fama-French three-factor model is applicable to the Shanghai Stock Exchange A-share market,and the market premium factor,scale factor,and book value ratio factor have a significant impact;(2)changes in investor sentiment can significantly cause assets The combination income changes in the same direction,but the degree of influence is different;(3)Compared with the three-factor model,the four-factor model with added emotional factors has stronger interpretation ability.Based on theoretical and empirical research,this article argues that,on the one hand,investors need to fully understand the market's mechanism and effect on investors' own emotions and reduce irrational behavior.On the other hand,regulators need to establish a monitoring mechanism for sentiment fluctuations in the capital market to ensure the smooth operation of the market.Finally,according to the shortcomings of this paper,the improvement direction is proposed.