45
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with previous findings that it takes average one day for investor sentiment information to transform into stock prices. To conclude:
First, the investor sentiment index can reflect real trends in Chinese stock market. Overall, investor sentiment has the same fluctuation with stock returns and can represent the change in stock market to some extent.
Second, the change in stock market return can cause investor sentiment to change, stock return is the Granger cause of investor sentiment. It can be
explained as the change in bullish and bearish sentiment. When the market return rises, the optimistic investor sentiment is also rising.
Third, it takes average one day lag for the investor sentiment effect to take place. Due to the fast development of Chinese stock market, information spreading speed has largely improved. However, it still takes some time for information to transform into prices, so do investor sentiment. As a result, individual investors should improve their ability to identify information, make full use of open information before making investing decisions. Government is supposed to urge companies to disclosure more internal and reliable information, and crack down on the release of false information, which could probably arise market disruption.
Fourth, compared with stocks of large capitalization, the influence of investor sentiment is larger on stocks of small capitalization. It is in line with the theories introduced in above papers. It also induces a new question that whether the predictability power of investor sentiment is more pronounced and lasts over longer horizons for small-cap stocks than large cap ones.
The documented term structure of sentiment effect and its undeniable pricing impact can help address some seemingly price anomalies in China. For example, Mei et al. (2009) indicates that investor sentiment is related with the long-lasting price gap between Chinese A-share and B-share market. The meaning of
analyzing investor sentiment is to provide investors with reasonable investment
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suggestions and optimize return, so the predictive power of investor sentiment is a good point further for research.
Due to the lack of data and various standards of different databases, the paper chooses monthly data for analysis. It would be of great restriction to quantify the investor sentiment influence more accurately with monthly data, since Chinese market is known for its high turnover rate and frequent short-term transactions.
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