THE IMPACT OF INVESTOR SENTIMENT ON THE RETURN OF STOCKS—EMPIRICAL ANALYSIS BASED ON THE DCC-GARCH MODEL

Abstract. With the gradual inapplicability of the “rational man” and the efficient market hypothesis in the contemporary financial field, modern finance represented by behavioral finance has emerged. Behavioral finance is guided by the study of human psychology and behavior, exploring the internal connections and fluctuations in the financial market. Investor sentiment is often regarded as the most effective data reflected from a human perspective. Therefore, this article selects the monthly data of CICSI Investor Sentiment Index, Shenzhen Component Index, and Shanghai Composite Index logarithmic rate of return from February 2003 to December 2017, and establishes a DCCGARCH model for dynamic correlation analysis as an empirical study Basis, and draw conclusions. After research, it is found that there is a very obvious relationship between the investor sentiment index and the logarithmic return rate of the Chinese main board market. Particularly during periods of high investor sentiment, the negative correlation presented is more significant. Finally, based on the results of the research, this article makes recommendations for behavioral finance research, policy and regulation formulation, financial supervision and investors.