What reflects investor sentiment? Empirical evidence from China

Zimei Huang; Zhenghui Li; Zimei Huang; Zhenghui Li

doi:10.3934/DSFE.2021013

Data Science in Finance and Economics

2021, Volume 1, Issue 3: 235-252. doi: 10.3934/DSFE.2021013

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Research article

What reflects investor sentiment? Empirical evidence from China

Zimei Huang ¹,
Zhenghui Li ^{2
,
,}

1.
School of Economics and Statistics, Guangzhou University, Guangzhou 510006, China
2.
Guangzhou Institute of International Finance, Guangzhou University, Guangzhou 510006, China

Received: 22 August 2021 Accepted: 30 October 2021 Published: 03 November 2021
JEL Codes: E22, G30

Investor sentiment tends to show systemic bias on the market, and exerts a significant impact on future market fluctuations, which tends to form an amplified feedback effect. This paper selects three different types of data, namely the emotional text data, the volatility of the stock price and the turnover rate, and other multi-index comprehensive data. Then, this paper formulates different types of investor sentiment indexes through different types of data. From fitting effect of three different types investor sentiment, three different types of investor sentiment index and stock price index correlation to compare the reliability of investor sentiment index. The findings are as follows: First, from the perspective of model fitting, the emotional text-based sentiment index performs better and the model is more robust. Second, from the perspective of market correlation, the text-based sentiment index has the strongest correlation with the stock market. Based on these, the investor sentiment index compiled based on emotional text data more fully reflects investor sentiment.
- investor sentiment,
- R vine copula,
- DCC-GARCH
Citation: Zimei Huang, Zhenghui Li. What reflects investor sentiment? Empirical evidence from China[J]. Data Science in Finance and Economics, 2021, 1(3): 235-252. doi: 10.3934/DSFE.2021013

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Abstract

Investor sentiment tends to show systemic bias on the market, and exerts a significant impact on future market fluctuations, which tends to form an amplified feedback effect. This paper selects three different types of data, namely the emotional text data, the volatility of the stock price and the turnover rate, and other multi-index comprehensive data. Then, this paper formulates different types of investor sentiment indexes through different types of data. From fitting effect of three different types investor sentiment, three different types of investor sentiment index and stock price index correlation to compare the reliability of investor sentiment index. The findings are as follows: First, from the perspective of model fitting, the emotional text-based sentiment index performs better and the model is more robust. Second, from the perspective of market correlation, the text-based sentiment index has the strongest correlation with the stock market. Based on these, the investor sentiment index compiled based on emotional text data more fully reflects investor sentiment.

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