Individual Investor Sentiment,Network We-media Effect And Stock Returns

Individual investor sentiment has always been a hot topic in the study of behavioral finance.How to measure individual investor sentiment is the key to the study of this problem.Some scholars have constructed different sentiment proxy variables,such as explicit emotional index,invisible emotional index and compound emotional index,which are typical of the Kumar and Lee(2008)BSI index and the BW sentiment index constructed by Baker and Wurgler(2006),can well explain the stock returns.Can network media sentiment be a proxy variables of individual investor sentiment?Through the python web crawler means,This article crawls the number of posts on East Money Stock Post Boards and network media sentiment index of 954 sample stock during the January 1,2013 to December 31,2014.Respectively,by using the number of posts on East Money Stock Post Boards and network media sentiment index as proxy variables of the individual investor sentiment,this paper analyzes the relationship among the individual investor sentiment,the network we-media effect,and the predictability of stock returns.We find that individual investor sentiment can influence stock returns through the spread of network we-media which produces a significant predictability.Specifically,stocks with the more number of posts and higher network media sentiment index will earn higher in short-term,showing a short-term momentum effect.When distinguishing the sample stocks by corporation identity,the empirical results show significant cross-sectional differences,indicate that individual investor sentiment more significantly affects the small scale stocks,low book-to-market stocks and stocks with low institutional ownership,showing a distinguished "Sentiment Cogging Effect".Furthermore,after risk adjustment,the zero-cost arbitrage portfolio still produces significant excess returns.When the number of posts is used as the individual investor's sentiment proxy,the excess return comes from the portfolio of early low number of posts,showing a significant Neglected firm effect.However,when we use the network media sentiment index as a proxy variable,the excess returns from the portfolio of early high network media,showing the sentiment momentum effect.Moreover,when we build sentiment factor based on the network media sentiment index as the fifth influencing factor,we find that the sentiment factor can well explain the excess returns of the above stocks.It can be seen that individual investor sentiment is an independent effect on stock returns.Finally,the empirical results of this paper also show that individual investor sentiment is also affected by changes in stock prices traction,sentiment and price interaction between the existence.sentiment remains emotional.The research results of this paper further enrich the research of individual investor sentiment theory and provide a new perspective for our understanding of stock price behavior.For regulators,this paper suggests that innovation on the market regulatory point of view,to prevent the rapid changes in network media sentiment caused by the sharp fluctuations in stock prices.Finally,for the investors in the securities market,this paper proves that according to network media sentiment index to construct arbitrage portfolio strategy,it can obtain significant excess returns.