The Impact Of Financial Uncertainty And Investor Sentiment On Stock Market Volatility

Market volatility has always been the focus of attention.Volatility means returns and risks,and balancing investment returns and risks is a challenge in investing.Appropriate volatility is the premise of the healthy and orderly development of the stock market.Therefore,the influencing factors of market volatility have become hotspots in academia.Behavioral finance theory proposes that investor sentiment influence the trading market by affecting investment behavior.In 2018,the measurement of financial uncertainty was introduced,and it was proposed for the first time that financial uncertainty has a strong prediction effect on market volatility.This paper studies the impact of financial uncertainty and investor sentiment on market volatility,including the existence and heterogeneity of the influence.First of all,the index system was constructed.The financial uncertainty index of the whole market is constructed by combining the uncertainty data of 142 financial variables.Taking the limited attention of investors as a new proxy variable of investor sentiment,and combining with the basic variables of traditional sentiment comprehensive index,we constructed a more comprehensive index.The realized volatility of CSI 300 was taken as the proxy variable of market volatility.Secondly,we constructed a general GARCH equation to study the impact of financial uncertainty and investor sentiment on market volatility.Lastly,the sample were divided into high volatility state and low volatility state by the MS-AR model,and then analyze the heterogeneity of their impact on market volatility.Based on the empirical research,we find the following results: financial uncertainty and investor sentiment have a positive impact on market volatility,and the impact are heterogeneous.The general GARCH model point out that both financial uncertainty and investor sentiment have a significant positive impact on market volatility,and their first-order lagged variables show a stronger positive impact,that is,they have a stronger ability to predict the future volatility of the stock market.GARCH model with state dummy variable propose that the influence of financial uncertainty and investor sentiment on market volatility is heterogeneous.When the stock market in a high volatility state,they have a stronger impact on market volatility.(1)Financial uncertainty index shows significant positive influence in high volatility,but it is not significant in low volatility,and the lag variable is significant in both states,but the positive influence is stronger in high volatility.(2)And the positive effect of investor sentiment on market volatility is only in high volatility,but not in low volatility.