Individual Investor Sentiment,Disagreement And Stock Returns

As an important part of the research on investor group behavior,investor sentiment and investor heterogeneous beliefs(divergence)describe the characteristics of investor beliefs from two different perspectives: mean and variance.Therefore,incorporating investor heterogeneous beliefs and investor sentiment into the research category of asset pricing issues can more accurately grasp the characteristics of investors’ behavior,which is of great significance for promoting market efficiency.In addition,compared with institutional investors,individual investors have a higher degree of irrationality in transactions.Studying the impact of individual investors’ emotions and differences of opinion on the Chinese market is more in line with the actual situation and provides a new perspective for understanding the irrational behavior of individual investors.This thesis uses the relevant data of Shanghai and Shenzhen A shares from December 2010 to September 2019 to study the impact of investor sentiment and heterogeneous beliefs(disagreements)on asset pricing from the perspective of individual investors.The research found that:(1)High individual investor sentiment will magnify the negative correlation between heterogeneous beliefs(disagreements)and future stock returns.(2)The effect of high individual investor sentiment amplifying the negative correlation between heterogeneous beliefs(disagreements)and expected stock returns only exists in small-cap stocks,but this phenomenon does not exist in large-cap stocks.(3)For stocks with high(low)investor attention,high individual investor sentiment will magnify the negative(positive)correlation between heterogeneous beliefs(disagreements)and future stock returns.(4)Compared with the falling period,the difference of opinions in rising period of individual investor sentiment has a greater negative impact on the future return of stocks.In addition,the extreme high sentiment and extreme low sentiment of individual investors have asymmetric effects on the relationship between differences of opinion and stock returns.The possible innovations and contributions of this thesis are embodied in the following aspects: First,the previous literature used more market investor sentiment,while this thesis separately considers the impact of individual investor sentiment and heterogeneous beliefs on asset pricing and provides a new perspective for understanding the behavior of individual investors.Second,this thesis considers the influence of individual investor sentiment changes in the relationship framework between heterogeneous beliefs(disagreements)and stock returns from a dynamic perspective,and supplements the literature on investor sentiment,disagreement and asset pricing.Third,this thesis also explores the influence of extreme individual investor sentiment on the relationship between disagreements and stock returns,enriching the relevant research on extreme sentiment.