A Study Of The Relationship Between Investor Sentiment And Stock Returns

Investor sentiment refers to investors’ expectations and feelings for the future trend of the market or individual stocks,and investor sentiment mainly includes positive sentiment and negative sentiment.Optimism means that investors believe that the market or individual stocks will move better in the future,while pessimism means that investors believe that the future will be worse.The study shows that there is a significant relationship between sentiment factors established by macro proxy indicators and stock returns in China’s A-share market.Under optimism,the stock market tends to show better returns,as investors generally believe that the market will continue to move in a good direction.Conversely,under pessimism,the stock market usually shows poor returns because investors generally believe that the market will be headed for a recession.Based on the theory of behavioral finance,this paper analyzes the impact of investor sentiment on stock returns in the A-share market by using principal component analysis from A macro perspective and based on the number of new account openings,financing balance,trading volume,consumer confidence index and investor confidence index,and analyzes the impact of investor sentiment on stock returns in the entire Ashare market.The principal component analysis method can better reflect the comprehensive impact of market conditions,but there are still some problems,such as principal component analysis method ignores the special situation of individual stocks,can only reflect the trend of market sentiment through economic indicator data,and cannot explain the reasons for the change in sentiment.This may limit the in-depth understanding and analysis of market sentiment.Therefore,this paper also focuses on analyzing the impact of investor sentiment on stock returns in the biological products sector under the influence of the general environment from a micro perspective,using text analysis to capture the special situation of individual stocks,comprehensively understanding the reasons for emotional changes,and in-depth study of the relationship between investor sentiment and stock returns.In order to explain the relationship between investor sentiment and stock returns more reasonably,this paper uses Python to crawl the comments of stocks in the biological products sector of the Oriental Wealth Stock Bar,analyze the crawled text,construct investor sentiment factors,add sentiment factors to the three-factor model,and compare the coefficients of the three-factor model and the four-factor model to explain the stock returns.The results of this paper provide further evidence that investor sentiment affects stock returns from both macro and micro perspectives.We advise individual and institutional investors in the stock market,as well as government regulators,that when obtaining relevant information,individual investors should improve their ability to distinguish and process information to avoid herding effect;Institutional investors should collect more stock information from social media to obtain more stable investment returns;In order to promote the stable,healthy and orderly development of China’s stock market,it is suggested that relevant regulatory agencies should strengthen the supervision and guidance of market network public opinion to reduce irrational investment behavior.