Quantitative Trading Strategies Based On Investor Sentiment

Financial market anomalies appear frequently,and market efficiency theory cannot fully explain the market phenomenon.On this basis,the theory of behavioral finance has been produced.The behavioral finance that joins disciplines such as psychology and sociology has given a better explanation of market behaviors.As an important theory of behavioral finance,the theory of investor sentiment has been widely studied.The influence of investor sentiment on the market has been confirmed by most scholars.Because investor sentiment cannot be measured directly,the construction of investor sentiment index has become a focus of investor sentiment theory.Most scholars use principal component analysis when constructing investor sentiment.This paper uses principal component analysis method and Kalman filter method to construct investor sentiment index.In the process of constructing an investor sentiment index,closed-end fund discount rate,IPO first-day yield,number of IPOs,new account opening,market turnover rate,and consumer confidence index were selected as proxy variables.The relevance and significance of the six indicators and the market have been tested.According to the constructed index,a quantitative investment strategy is established.Considering the short-term inertia and long-term reversal effect of the market,the quantitative timing strategy is selected based on the two effects.Analyzing different investment strategies,the Z(2,2)strategy is better than the K(3,2)strategy,and the strategy is compared with the four indices of Shanghai 50,Shanghai 180,Shanghai Stock Exchange,and Shanghai Small Cap.The results show that the quantitative trading strategy based on investor sentiment performed better in the small and medium-sized market than in the broader market.At the same time,investors responded more quickly to bearish sentiment in the bear market,and similar investors responded more quickly to bullish sentiment in the bull market.The comparison of returns and retracement indicators confirms that quantitative trading strategies based on investor sentiment are effective strategies.