An Empirical Research on the Correlation between Market Sentiment and Returns of Stocks

Abstract

From the point of view of behavior finance, this paper submits the empirical evidence of the correlation between market sentiment and returns of stocks. Considering the realistic situations of China’s stock market, we adopt the historical data of 27 close-end funds from 2006 to 2010. The empirical results show that market sentiment can generate significant influence on the volatility of fund income and the latter also play an important role in the form of the former, which suggest that China Stock Market has not reached weak-form market.