The Research On The Effect Of Customer Confidence Index On Risk Contagion In Stock Market

Traditional financial theory believes that the market is effective,and investors are rational,the stock price in the capital market can accurately reflect its true value.However,with the development of economy,there are lots of anomalies in stock markets.The traditional financial theory is increasingly unable to explain these problems.With the continuous development of theory and financial practices,investor sentiment becomes an important element to explain financial anomalies.Academia commonly uses Consumer Confidence Index（CCI）as an agent of sentiment indicators.They conclude that consumers are also investors and when they lose confidence in the economy they often lose confidence in stock market as well（Fisher&Statman,2000;Qiu&Welch,2006）^[1][2].Based on the researches by other scholars,we think that the Consumer Confidence Index（CCI）can represent the sentiment of investors in stock market.This article first elaborates the theoretical foundation of the effect of Consumer Confidence Index on risk contagion,and then analyzes channels of the effect of Consumer Confidence Index on risk contagion,including Wake-up channel,herd-effect channel,and attention-allocation channel.After that,this article empirically studies the impact of Consumer Confidence Index on risk contagion in stock market.Considering the availability of the data,we choose China and USA.Through studying the effect of Investor Confidence Index（CCI）on contagion between Chinese stock market and American stock market,we try to illustrate the effect of Investor Confidence Index（CCI）on contagion in stock markets.This paper selects the closing prices of the Shanghai Composite Index and the Dow Jones Index from January 4,2006 to December 30,2016,and uses the GARCH model to calculate VaR of the Chinese stock market and the US stock market.This article uses VaR of these two countries as the index of contagion,and uses then for regression analysis to illustrate the existence of risk contagion between the US and the China stock markets.The risk contagion coefficient obtained from the VaR regression of the two markets then is used as an explanatory variable,and the consumer confidence indexes of China and the United States are used as explanatory variables to illustrate the the contagion is caused by sentiment,and this article tries to analysis the contagion channels.The study finds that:（1）US stock market's risk affects Chinese stock market positively.（2）The consumer confidence index has both positive and negative impacts on risk contagion,and this is because Consumer Confidence Index affects the risk contagion through two paths.（3）The sentiment changes in the Chinese market itself have a greater impact on risk contagion.Finally,based on the theoretical and empirical results,we put forward corresponding policy recommendations,including:supervising the anomalies in stock market,preventing international risk contagion;paying attention to small and medium investor education,increasing the proportion of institutional investors;improving the information disclosure mechanism,reducing information asymmetry;establishing investorsentimentmanagement,guidinginvestorbehavior.Thesefour recommendations will help the government to prevent financial risks and ensure the healthy development of financial markets.