Abstract
The investors’ market participation willingness plays a vital role in the decision-making process of asset allocation. With the newly emerged dataset of investors’ market participation willingness, this paper provides the first evidence on the dynamic relationship between market participation willingness and the market dynamics in the Chinese stock market. We select four typical Chinese stock market indices, i.e., SSE50 Index, CSI300 Index, Small and Medium Enterprise Market Index, and Growth Enterprise Market Index, to represent different aspects of the Chinese stock market. Moreover, we use mutual information to measure the overall dependence between market participation willingness and stock market and employ the DCCA cross-correlation coefficient and MF-DCCA to investigate the cross-correlation between market participation willingness and market dynamics. We find that there exist overall dependence and power-law cross-correlation between market participation willingness and the Chinese stock market, and the cross-correlations are significantly multifractal.
Highlights
Stock market participation is always an important topic in behavioral finance
We investigate the nonlinear and dynamic relationship between market participation willingness, measured by Yu’e Bao Sentiment Index, and Chinese stock market performance
We utilize daily returns, trading volume, and returns volatility of SSE50, CSI300, SME, and GME to characterize the dynamic of Chinese stock market
Summary
Stock market participation is always an important topic in behavioral finance. Investors’ market participation willingness directly affects investment decisions on how to allocate their assets to the savings or stock market. High market participation willingness means that more investors participate in the stock market and more capital flows into the stock market. E limited stock market participation is one of the most important market frictions and can help us understand some financial puzzles or anomalies which cannot be explained by frictionless neoclassical models [1]. Existing literature on market participation is more concerned with the determinants of market participation, while little is known about the influence of it on the stock market. Previous studies have been paying more attention to the determinants of market participation. Some basic determinants of stock market participation have been recognized
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