Abstract
Based on the method of Baker&Wurgler, we create a comprehensive investor sentiment indicator using the principal component analysis and aim to examine the relationships between investor sentiment and market return, stock portfolio returns and industry returns in Chinese A-share market. We draw the following conclusions: (1) Investor sentiment and market return mutually affect each other, but the degree of effect differs in different market periods, (2) We divide stocks into 5×5 SIZE-B/M portfolios and add investor sentiment into the original Fama-French three factor model, we find that returns of stock portfolios with small size and high B/M are vulnerable to investor sentiment, (3) Using ShenWan stylish indices, we find that stock returns of companies with small size, high PE, low PB, low price are more easily influenced by investor sentiment changes, (4) Investor sentiment will also affect returns of industries.
Published Version
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