This study examined the effect of investor sentiment on return in the China stock market for a period of nineteen years from 2000 to 2019. The survey used both granger causality and the OLS regression techniques to analyze the data. Accordingly, the findings from the study have revealed that investor sentiment has a remarkable positive impact on stock market returns by examining Treasury bills, consumer price index, and industrial production index. Also, the study has unfolded that unidirectional causality operates from investor sentiment to stock market returns. Reportedly, the study has established that stockholder sentiments have relatively lower explanatory power to returns on the stock market. Finally, this study posits the presence of dynamic correlation between the action of stock future returns and investor sentiment in China causes an increase in stock prices.
Table of Contents
1. Introduction
1.1 Background to the study
1.2 Statement of the Problem
1.3 Statement of research questions
1.4 Other objectives of the study
1.5 Hypotheses
1.6 Scope of the Study
2. Literature Review
2.1 Theoretical framework
2.2 Empirical Studies
2.3 Gap in Literature
3. Research Methodology
4. Findings & Analysis
Objectives & Research Topics
This study aims to evaluate the impact of investor sentiment on stock market returns in China to determine whether psychological factors and market sentiments influence asset pricing beyond traditional economic indicators.
- Analysis of the relationship between investor sentiment and stock returns.
- Examination of macroeconomic variables including consumer price index, industrial production, and risk-free interest rates.
- Evaluation of bidirectional or unidirectional causality between investor sentiment and market performance.
- Assessment of the efficiency of the Chinese stock market regarding the incorporation of non-fundamental information.
Excerpt from the Book
1.1 Background to the study
The phrase sentiment is related to demeanour, judgment, or thought provoked by sentiment. Therefore, investor sentiment can be described as “the overall inclination, state of mind, conviction or desire for advertising execution". This word is not just utilized in brain science yet also in the finance realm. Typically, the sentiment is related to the intellectual examinations made by financial specialists in their speculation or investment. Consequently, financial specialists can depend on psychological factors just as their expertise in making venture choices. Hence, the sentiment is the speculation choices concerning the prices of assets that are not connected with the monetary and market basics.
Previously, scientists described sentiments as speculators' prejudiced desire on asset prices the commotion in financial markets. The segment of financial specialists' assumptions regarding return on assets that are not defended by basics. Almansour (2015) characterize investor sentiment as the desire for financial specialists in regards to the cost of at least one financial asset that did not depend on essential data. All these explanations highlight the impact of non-principal factors on financial decisions. In short, investor sentiment is the predisposition in asset value which makes the wrong estimation of economic resources, away from the balance, because of the utilization of physiological nature as opposed to coherent choices dependent on central.
Summary of Chapters
1. Introduction: This chapter introduces the core concepts of investor sentiment, defines the research problem within the context of the Chinese stock market, and outlines the study's scope and objectives.
2. Literature Review: Provides a comprehensive overview of existing theoretical frameworks and empirical studies concerning investor sentiment and its influence on asset pricing in both developed and emerging markets.
3. Research Methodology: Explains the research design, including the use of descriptive and explanatory analysis, and details the data collection process and the regression models employed to test the impact of sentiment on returns.
4. Findings & Analysis: Presents empirical results based on descriptive statistics, VIF tests for multicollinearity, and regression models, concluding with Granger causality tests to establish links between sentiment and stock performance.
Keywords
Investor sentiment, stock return, China stock market, consumer price index, market efficiency, behavioral finance, asset pricing, Granger causality, OLS regression, macroeconomic variables, rational investors, market equilibrium, financial speculation
Frequently Asked Questions
What is the primary focus of this research?
The research primarily focuses on the effect of investor sentiment—the psychological inclination of market participants—on stock returns within the Chinese financial market from 2000 to 2019.
What are the central thematic fields?
The central thematic fields include behavioral finance, asset pricing theory, market efficiency, and the influence of macroeconomic factors like inflation and industrial production on investor behavior.
What is the core objective of the study?
The primary objective is to evaluate whether investor sentiment acts as a significant factor in determining stock returns and if this relationship holds even when standard economic indicators are controlled.
Which methodologies are employed?
The study utilizes quantitative techniques, specifically OLS regression and Granger causality tests, to empirically analyze the relationship between sentiment proxies (like the Consumer Confidence Index) and market returns.
What is covered in the main body?
The main body covers the theoretical background, the identification of the gap in current literature, the technical specification of the econometric models, and a detailed analysis of findings derived from descriptive and diagnostic statistics.
Which keywords characterize this paper?
Key terms include investor sentiment, stock return, China stock market, behavioral finance, and Granger causality.
How is investor sentiment measured in this study?
Investor sentiment is proxied using the Consumer Confidence Index (CCI), which is adjusted for negative tiers as suggested by Oprea and Brad (2014) to better reflect its influence on market dynamics.
What does the study conclude regarding causality?
The study finds evidence of unidirectional causality running from investor sentiment to stock market returns, suggesting that sentiment changes precede shifts in market prices.
What role do control variables play?
Control variables such as the Treasury bill rate, Consumer Price Index, and Industrial Production Index are integrated to account for fundamental macroeconomic impacts, ensuring the observed effect of sentiment is not merely a reflection of these underlying factors.
- Arbeit zitieren
- Doctor Clement Bill (Autor:in), 2021, China's Stock Market. Impact of Investor's Sentiment on Returns of Stocks, München, GRIN Verlag, https://www.grin.com/document/1312057
