Investor Sentiment And Asset Pricing

Based on the research on the pricing of financial asset with behavioral finance theory,this paper sorts out the relationship between investor sentiment and capital markets,and finds that the current research has several deficiencies: quantitative methods of investor sentiment and the selection of theoretical models of financial asset pricing is not necessarily suitable for China Stock Market;the literature has mostly studied the investor sentiment effect based on the Fama-French three-factor asset pricing model,and there are few studies on the investor sentiment effect based on the multi-factor asset pricing model.Based on current research on financial asset pricing,this paper improves and quantifies research on investor sentiment.For stocks listed on China Main Board Market,the principal component analysis method is used to construct the Investor Sentiment Composite Index(ISE).The newly constructed investor sentiment composite index was introduced into the Lu Zhang et al.(2015)Q-factor asset pricing model as an investor sentiment factor,and based on the improved financial asset pricing model,this paper studies the impact of investor sentiment on financial asset pricing in capital markets.Based on the extended Q-factor asset pricing model,the research results show that,investor sentiment has different effects on the pricing of stock in different portfolios.On the whole,investor sentiment and financial asset pricing are negatively correlated,and each has its own characteristics during the US-China trade war and the stable and controllable period of COVID-19 in China: During the US-China trade war,investor sentiment had a significant negative impact on financial asset pricing and the duration was short;during the stable and controllable period of COVID-19 in China,investor sentiment had a significant positive impact on financial asset pricing and the duration was short,which is consistent with the phenomenon of numerous "chasing up and down" in China Stock Market.The above research conclusions provide experience for the application of financial asset pricing theory in China Capital Market.Based on China Main Board Market,this paper studies the three effects of investor sentiment on asset pricing and puts forward some suggestions for investors and regulators.