Research On The Impact Of Investor Sentiment On Stock Returns Based On Multi Factor Asset Pricing Model

Looking back at the multiple bull and bear market cycles that the A-share market has experienced over the past three decades,the most distinctive features are that the bear market lasts longer than the bull market,and the phenomenon of skyrocketing and plummeting is serious,which is obviously different from the mature stock market in Europe and the United States.It is characterized by a short period and a steady rise in the index.The exploration of this phenomenon needs to be based on the basic fact that individual investors occupy the dominant position in my country’s stock market,and analyze it in combination with the research frontiers of international capital asset pricing theory.In recent years,starting from the research on the actual decision-making behavior of investors,focusing on the rise of behavioral finance,which focuses on the influence of the human factors that dominate the financial market on the market,provides theoretical guidance for the analysis and research of this paper.How to introduce information that measures investor behavior factors such as market habit formation,limited participation,and incomplete information into the asset pricing model with CAPM as the basic paradigm,realize the effective combination of classical finance and behavioral finance,and build a market based on the characteristics of A-shares The capital asset pricing model is the main problem that this paper tries to solve.The theoretical part of this paper mainly introduces the classical CAPM model,the Fama-French multi-factor asset pricing model developed on its basis,and the related theories of investor sentiment research based on behavioral finance.In the empirical part,firstly,the redundancy of investment factors is proved by the validity test of the Fama-French five-factor model;secondly,the principal component analysis method is used to construct a monthly comprehensive index of investor sentiment based on the A-share market,and it is proved that it is related to stock market returns.This paper presents the phenomenon of "short-term return inertia and long-term return reversal",and draws the conclusion that the representative deviation of investors in the A-share market is obvious,which reasonably explains the abnormal performance of my country’s stock market.Finally,the investor sentiment factor is replaced by the investment factor.By adding the Fama-French five-factor model,a new five-factor model is constructed.Through empirical testing,it is proved that the new five-factor model is more applicable to the A-share market,and the conclusion is that the sentiment factor is effective..