Research On The Construction And Application Of Investor Sentiment Index In China’s Stock Market

In the capitalist market,since the middle and late of last century,abnormal fluctuations of stock prices and abnormal transactions of investors have occurred frequently in the stock market,but the traditional financial theory can not explain these abnormal phenomena.Therefore,a new economic theory has attracted extensive attention of scholars,that is,behavioral finance,Research at home and abroad shows that investor sentiment will affect the stock market to a certain extent.The fundamental goal of the establishment and operation of the financial market is to achieve efficiency,but the efficiency really needs investors to be based on the premise of rationality.With the in-depth study of behavioral finance,people gradually realize that investors can not be completely rational,so it is difficult for the financial market to be completely effective,and many of them are ineffective behaviors.The reason for the ineffective behavior of financial market is the irrational behavior of investors,and "emotion" is one of the important reasons for the irrational behavior of investors.Based on China’s stock market,this paper studies the impact of investor sentiment on stock market returns from two aspects: theoretical part and empirical part,in which the empirical part is the focus of this paper.It is difficult to measure investor sentiment.Investors in the stock market often know its existence,but they can not quantify the index of investor sentiment.At present,the majority of scholars mainly use two methods to construct investor sentiment index,one is the principal component analysis(PCA)proposed earlier,and the other is the partial least squares(PLS)proposed in recent years.This paper uses two methods to construct investor sentiment ISI(PCA)and ISI(PLS)for comparison.We selected five emotion proxy indicators and three macroeconomic indicators,eliminated the macroeconomic impact after determining the lag period,and obtained two investor sentiment indexes.We compared the two sentiment indexes ISI(PCA)and ISI(PLS),and compared the two investor sentiment indexes with the stock market return to judge their fitting effect on the stock market,We found that both fit well.The demonstration is mainly divided into two aspects: 1.The impact of investor sentiment index on stock market return.Here we mainly discuss the relationship between our investor sentiment index and Shanghai stock market.We mainly use vector autoregressive model(Va R).2.The impact of individual stock investor sentiment index on individual stock return.Here,we select some constituent stocks of Shanghai Stock Exchange 50 index to explore the impact of individual stock investor sentiment index on individual stock return.Here,we use panel vector autoregressive model(pvar)to study.To sum up,the conclusion of this paper is that ISI(PCA)can better fit the overall stock market return and predict the fluctuation of stock market return.At the same time,the investor sentiment index has a certain impact on the stock market return.At the same time,the results of pvar model infer that the increase of investor sentiment in the short term will lead to the decrease of stock market return,With the passage of time,it returns to normal,and the negative emotion has a more obvious impact on the stock market return than the positive emotion.The innovation of this paper is mainly reflected in the two opposite sides of theory and demonstration.In the theoretical part,the theory of behavioral finance is introduced to explore investor sentiment,which is at the forefront of the theoretical research part;In the empirical part,we use a variety of model methods to conduct econometric analysis from a variety of angles,which greatly enhances the credibility of the research results.