Research On The Relationship Between Investor Sentiment And China’s Stock Market Return

One of the basic assumptions of traditional economics is the assumption of "rational man".The most basic explanation of the assumption of rational man is to take selfinterest as the most original motivation and try our best to obtain their own maximum economic benefits at the least cost.This classical assumption is very correct in many cases,but the diversity of the market determines that there will be many irrational situations.These irrational situations will not be partially hedged by rationality,and even affect the whole market,especially in the imperfect stock market.Some emotions of investors will greatly affect the operation of the stock market.Compared with the stock market in Europe and America,China’s stock market is an immature and imperfect market.There are many ups and downs,and the behavior of investors has a great impact on the stock market,resulting in high risk and low efficiency of the stock market.It not only has a great impact on the construction of the integrity of the stock market itself,but also it is difficult to protect the interests of small and medium-sized investors,At the same time,China’s stock market has been unable to cultivate a number of qualified investors.From the perspective of behavioral finance and using the relevant theories of behavioral finance for reference,this paper studies the relationship between investor sentiment and stock market return,which is of great practical significance for establishing a perfect stock market,improving the efficiency of stock market,improving the ability of protecting the interests of small and medium-sized investors,and cultivating qualified investors.This paper selects eight indicators,and considering the characteristics of the stock market,it also adds the lagging indicators of these eight indicators.This paper constructs the investor sentiment index through two PCA methods,and Then it makes a series of empirical analysis on the stock market return and investor sentiment index,such as stability test,causality test,long-term relationship test,construction of VAR model and so on.Finally,it discusses the improvement of China’s stock market,and puts forward some suggestions on the protection of investors’ interests and the cultivation of qualified investors.