Science Research  Academic Press

A Study of the Impact of Investor Sentiment on Stock Investment Returns

Yuxin  Qin 
Keywords: investor sentiment; vector autoregressive (VAR) models; exponential generalized autoregressive conditional heteroskedasticity GARCH family models

Abstract

This study examines the influence of investor sentiment on stock investment returns in China's rapidly developing yet volatile securities market. Utilizing principal component analysis, a comprehensive investor sentiment index is constructed from six key indicators. The dynamic relationship between investor sentiment and stock market return volatility is explored through a Vector Autoregression (VAR) model and Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models. The findings reveal a significant bidirectional correlation, with positive optimism exerting a greater impact on stock returns than negative pessimism. The findings of this study indicate that investor sentiment exhibits a heightened sensitivity to declining returns as opposed to rising ones, offering valuable insights for both investors and policymakers.