The Relationship between Investor Sentiment and Stock Market Return Volatility ‐ An Applied Analysis based on Directed Acyclic Graphs

Yiwei Shao

《Frontiers in Economics and Management》 4卷5期 (2023/05) Pp. 178-185

https://doi.org/10.6981/FEM.202305_4(5).0023

摘要

In recent years, with the in‐depth study of behavioural finance in the stock market, there is growing evidence that investors' cognitive biases and emotional biases are important factors contributing to stock market volatility. For an emerging stock market such as the Chinese stock market, the application of investor sentiment theory can provide an in-depth investigation into the irrational causes of stock market volatility other than fundamental factors, and thus provide an empirical basis for the prevention and mitigation of financial system risks. This paper investigates the contemporaneous and dynamic relationship between stock market volatility and investor sentiment based on the results of a directed acyclic graph analysis. The results of the study show that, in terms of contemporaneous effects, changes in stock market volatility and individual investor sentiment cause changes in institutional investor sentiment. The results of the fixed sample period and recursive predictive variance decomposition based on directed acyclic graphs further show that individual and institutional investor sentiment have some influence on stock market volatility, but the influence is generally weakening, individual investor sentiment has a " self‐fulfilling" mechanism and is strengthening, the influence of individual investor sentiment on institutional investor sentiment is increasing.

關鍵字

Directed Acyclic Graph ； Investor Sentiment ； Stock Market Volatility

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