Research on Investor Sentiment and Its Impact on the Market for Stocks

Research Article
Open access

Research on Investor Sentiment and Its Impact on the Market for Stocks

Ziyu Song 1*
  • 1 Southeast University    
  • *corresponding author 213202009@seu.edu.cn
Published on 10 November 2023 | https://doi.org/10.54254/2754-1169/38/20231896
AEMPS Vol.38
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-83558-097-4
ISBN (Online): 978-1-83558-098-1

Abstract

Both individual and institutional investors are affected by investor sentiment to varying degrees. Based on this, the research theme for this paper is the interaction between investor sentiment and the market for stocks. It begins with defining and quantifying the idea of investor sentiment and then analyzes how investor sentiment and the market for stocks are related, including stock market yield, stock price crash risk, and stock market bubble aspects. It is found that the definition of investor sentiment mostly revolves around the perspectives of "expectation" and "deviation", and the quantitative indicators of investor sentiment are mainly divided into three parts: objective, subjective, and network big data. Investor sentiment is highly predictive of changes in stock market yields in the short term, and high investor sentiment is more likely to lead to stock price crash risk or stock market bubbles. Finally, this paper points out the shortcomings of existing research, and puts forward the future prospects of relevant research conclusions, so as to provide a reference for subsequent scholars to conduct research on investor sentiment and the stock market.

Keywords:

investor sentiment, individual investors, stock market, institutional investors, stock market, yield

Song,Z. (2023). Research on Investor Sentiment and Its Impact on the Market for Stocks. Advances in Economics, Management and Political Sciences,38,121-127.
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References

[1]. Lee, C., Shleifer, A., Thaler, R.: Investor sentiment and the closed-end fund puzzle. The Journal of Finance 46(1), 75-109(1991).

[2]. Zhang, F., Zeng, Q. D.: Research on the Relationship between Investor Sentiment and Stock Market Income from the Perspective of Margin Trading: An Empirical Test Based on the CSI 300 Index. Price Theory & Practice (6), 123-128(2021).

[3]. Yang, L., Wang, Z.: Review of Investor Sentiment. Financial Theory & Practice (10), 100-104(2016).

[4]. Shiller, R. J., Konya, F., Tsutsui, Y.: Investor Behavior in the October 1987 Stock Market Crash: The Case of Japan. NBER Working Papers, (1988).

[5]. Li, C., Hu, Z. Y., Shi, S. R.: Research on irrational speculative bubble model based on stock market investor sentiment. Finance & Economics Theory & Practice 39(5), 51-57(2018).

[6]. Stein, J. C.: Rational Capital Budgeting in an Irrational World. Scholarly Articles, (1996).

[7]. Baker, M., Wurgler, J., Yu, Y.: Global, local, and contagious investor sentiment - ScienceDirect. Journal of Financial Economics 104(2), 272-287(2012).

[8]. Long, J. D., Shleifer, A., Summers, L. H., et al.: Positive Feedback Investment Strategies and Destabilizing Rational Speculation. Journal of Finance 45(2), 379-0(1990).

[9]. Baker, M., Wurgler, J.: Investor Sentiment and the Cross‐Section of Stock Returns. The Journal of Finance 61(4), (2006)

[10]. Lu, X. F., Li, J. Q.: The correlation between China's stock market index and investor sentiment index. Systems Engineering-Theory & Practice 32(03), 621-629(2012).

[11]. An, J. L., Zhang, L. C.: Investor Sentiment and Stock Returns - A Comparative Study Based on Individual and Institutional Investor Sentiment. Journal of Financial Development Research (8), 19-24(2016).

[12]. Ma, X. K., Sun, J.: Construction of Investor Sentiment Composite Index in China's Stock Market. Journal of Beijing Technology and Business University(Social Science Edition) 27(6), 89-95(2012).

[13]. Christiansen, C., Eriksen, J. N., SV, Møller.: Forecasting US Recessions: The Role of Sentiment. Social Science Electronic Publishing 49(72), 459-468(2014).

[14]. Lee, J., Kim, S., Park, Y. J.: Investor Sentiment and Credit Default Swap Spreads During the Global Financial Crisis. Journal of Futures Markets 37(7), 660-688(2017).

[15]. Wang, D. P., Fan, X. Y., Jia, Y. N., et al.: Investor Sentiment, Overtrading and China's A-share Market Volatility: An Analysis Based on Securities Investor Confidence Index Survey Data. Journal of Management Science25(7), 85-105(2022).

[16]. Chen, Y., Wang, L. X., Zhou, Z. M.: Research on the Impact of Investor Sentiment on Stock Price Index: Using Baidu Index and Weibo Index as Indicators. Price Theory & Practice (9), 56-59(2017).

[17]. Zhou, L.: Cross-market spillover effects of investor sentiment: A study based on online search indices for stock and commodity futures. Financial Theory & Practice (2), 110-118(2023).

[18]. Meng, X. J., Meng, X. L., Hu, Y. Y.: Research on investor sentiment index based on text mining and Baidu index. Macroeconomic Research (1), 144-153(2016).

[19]. Shleifer, A., Vishny, R.: The Limit of Arbitrage. Journal of Finance (52), 35-55(1997).

[20]. Sun, P. Y., Shi, D. H.: Research on herd behavior in Chinese stock market based on CAPM——Discussion with Mr. Song Jun and Mr. Wu Chongfeng. Economic Research Journal (02), 64-70+94(2002).

[21]. Devault, L., Sias, R., Starks, L.: Sentiment Metrics and Investor Demand. Journal of Finance (74), (2019).

[22]. Bondt, W. D., Thaler, R.: Does the Stock Market Overreact?. Journal of Finance 40(3), 793-805(1985).

[23]. Gregory, W., Brown, et al.: Investor sentiment and the near-term stock market. Journal of Empirical Finance, (2004).

[24]. Baker, M., Wurgler, J.: Appearing and disappearing dividends: The link to catering incentives. Journal of Financial Economics 73(2), (2003).

[25]. Hu, Y. T., Wang, L. X., Zhao, Y.: An empirical study on the impact of individual investor sentiment on stock returns——Based on the A-share market. Journal of Panzhihua University 37(06), 64-70(2020).

[26]. Neal, R., Wheatley, S., M.: Do Measures Of Investor Sentiment Predict Returns?. Journal of Financial and Quantitative Analysis 33(04), 523(1998).

[27]. Han, Z. X.: An Empirical Study on Investor Sentiment and China's Securities Market. (2005).

[28]. Shen, B., Chen, X. J.: Equity pledge, investor sentiment and stock price crash risk. Journal of Finance and Economics 430(09), 72-79(2019).

[29]. Wang, D., Xu, F. Q.: M&A goodwill, investor sentiment and corporate stock price crash risk. Friends of Accounting (17), 19-26(2021).

[30]. Zhang, T. J., Sun, Q.: Excessive optimism in online media and the risk of a stock price crash in listed companies. Management Modernization 42(1), 34-39(2022).

[31]. Pan, W. F.: Does investor sentiment drive stock market bubbles? Beware of excessive optimism!. Journal of Behavioral Finance 21(1), 27—41(2020).

[32]. Yin, H. Y., Yang, Q. S.: The influence of stock bar investor sentiment on stock price bubble based on Bi-LSTM model mining. Chinese Journal of Management 19(12), 1874-1885(2022).

Cite this article

Song,Z. (2023). Research on Investor Sentiment and Its Impact on the Market for Stocks. Advances in Economics, Management and Political Sciences,38,121-127.

Data availability

The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.

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About volume

Volume title: Proceedings of the 7th International Conference on Economic Management and Green Development

ISBN：978-1-83558-097-4(Print) / 978-1-83558-098-1(Online)
Editor：Canh Thien Dang
Conference website: https://www.icemgd.org/
Conference date: 6 August 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.38
ISSN：2754-1169(Print) / 2754-1177(Online)

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References

[1]. Lee, C., Shleifer, A., Thaler, R.: Investor sentiment and the closed-end fund puzzle. The Journal of Finance 46(1), 75-109(1991).

[2]. Zhang, F., Zeng, Q. D.: Research on the Relationship between Investor Sentiment and Stock Market Income from the Perspective of Margin Trading: An Empirical Test Based on the CSI 300 Index. Price Theory & Practice (6), 123-128(2021).

[3]. Yang, L., Wang, Z.: Review of Investor Sentiment. Financial Theory & Practice (10), 100-104(2016).

[4]. Shiller, R. J., Konya, F., Tsutsui, Y.: Investor Behavior in the October 1987 Stock Market Crash: The Case of Japan. NBER Working Papers, (1988).

[5]. Li, C., Hu, Z. Y., Shi, S. R.: Research on irrational speculative bubble model based on stock market investor sentiment. Finance & Economics Theory & Practice 39(5), 51-57(2018).

[6]. Stein, J. C.: Rational Capital Budgeting in an Irrational World. Scholarly Articles, (1996).

[7]. Baker, M., Wurgler, J., Yu, Y.: Global, local, and contagious investor sentiment - ScienceDirect. Journal of Financial Economics 104(2), 272-287(2012).

[8]. Long, J. D., Shleifer, A., Summers, L. H., et al.: Positive Feedback Investment Strategies and Destabilizing Rational Speculation. Journal of Finance 45(2), 379-0(1990).

[9]. Baker, M., Wurgler, J.: Investor Sentiment and the Cross‐Section of Stock Returns. The Journal of Finance 61(4), (2006)

[10]. Lu, X. F., Li, J. Q.: The correlation between China's stock market index and investor sentiment index. Systems Engineering-Theory & Practice 32(03), 621-629(2012).

[11]. An, J. L., Zhang, L. C.: Investor Sentiment and Stock Returns - A Comparative Study Based on Individual and Institutional Investor Sentiment. Journal of Financial Development Research (8), 19-24(2016).

[12]. Ma, X. K., Sun, J.: Construction of Investor Sentiment Composite Index in China's Stock Market. Journal of Beijing Technology and Business University(Social Science Edition) 27(6), 89-95(2012).

[13]. Christiansen, C., Eriksen, J. N., SV, Møller.: Forecasting US Recessions: The Role of Sentiment. Social Science Electronic Publishing 49(72), 459-468(2014).

[14]. Lee, J., Kim, S., Park, Y. J.: Investor Sentiment and Credit Default Swap Spreads During the Global Financial Crisis. Journal of Futures Markets 37(7), 660-688(2017).

[15]. Wang, D. P., Fan, X. Y., Jia, Y. N., et al.: Investor Sentiment, Overtrading and China's A-share Market Volatility: An Analysis Based on Securities Investor Confidence Index Survey Data. Journal of Management Science25(7), 85-105(2022).

[16]. Chen, Y., Wang, L. X., Zhou, Z. M.: Research on the Impact of Investor Sentiment on Stock Price Index: Using Baidu Index and Weibo Index as Indicators. Price Theory & Practice (9), 56-59(2017).

[17]. Zhou, L.: Cross-market spillover effects of investor sentiment: A study based on online search indices for stock and commodity futures. Financial Theory & Practice (2), 110-118(2023).

[18]. Meng, X. J., Meng, X. L., Hu, Y. Y.: Research on investor sentiment index based on text mining and Baidu index. Macroeconomic Research (1), 144-153(2016).

[19]. Shleifer, A., Vishny, R.: The Limit of Arbitrage. Journal of Finance (52), 35-55(1997).

[20]. Sun, P. Y., Shi, D. H.: Research on herd behavior in Chinese stock market based on CAPM——Discussion with Mr. Song Jun and Mr. Wu Chongfeng. Economic Research Journal (02), 64-70+94(2002).

[21]. Devault, L., Sias, R., Starks, L.: Sentiment Metrics and Investor Demand. Journal of Finance (74), (2019).

[22]. Bondt, W. D., Thaler, R.: Does the Stock Market Overreact?. Journal of Finance 40(3), 793-805(1985).

[23]. Gregory, W., Brown, et al.: Investor sentiment and the near-term stock market. Journal of Empirical Finance, (2004).

[24]. Baker, M., Wurgler, J.: Appearing and disappearing dividends: The link to catering incentives. Journal of Financial Economics 73(2), (2003).

[25]. Hu, Y. T., Wang, L. X., Zhao, Y.: An empirical study on the impact of individual investor sentiment on stock returns——Based on the A-share market. Journal of Panzhihua University 37(06), 64-70(2020).

[26]. Neal, R., Wheatley, S., M.: Do Measures Of Investor Sentiment Predict Returns?. Journal of Financial and Quantitative Analysis 33(04), 523(1998).

[27]. Han, Z. X.: An Empirical Study on Investor Sentiment and China's Securities Market. (2005).

[28]. Shen, B., Chen, X. J.: Equity pledge, investor sentiment and stock price crash risk. Journal of Finance and Economics 430(09), 72-79(2019).

[29]. Wang, D., Xu, F. Q.: M&A goodwill, investor sentiment and corporate stock price crash risk. Friends of Accounting (17), 19-26(2021).

[30]. Zhang, T. J., Sun, Q.: Excessive optimism in online media and the risk of a stock price crash in listed companies. Management Modernization 42(1), 34-39(2022).

[31]. Pan, W. F.: Does investor sentiment drive stock market bubbles? Beware of excessive optimism!. Journal of Behavioral Finance 21(1), 27—41(2020).

[32]. Yin, H. Y., Yang, Q. S.: The influence of stock bar investor sentiment on stock price bubble based on Bi-LSTM model mining. Chinese Journal of Management 19(12), 1874-1885(2022).

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