The Influence of Investor Sentiment on Stock Return and its Volatility under Different Market States

摘要

In order to distinguish the different influence of investors' sentiment on stock return and its volatility, the states of stock market are divided to bull market and bear market, and the noise trade model of Delong, Shleifer, Summers and Waldmann is expanded. Based on the expanded model, the influence of investors' sentiment on stock return and its volatility under the different stock market states is discussed. The results show that when the heterogeneous noise traders have misperception of assets higher than the average level, their behaviors will push the stock prices to deviate from stock fundamental values; moreover, optimistic noise traders' behavior will make the asset prices deviate further; and as long as the misperception of optimistic noise trader biased further than pessimistic noise trader's, the price of risky assets will fluctuated significantly, then the optimistic noise traders will get excess returns while the expected returns of pessimistic noise traders will become less and the risk of pessimistic noise traders will increase. These results provide theoretical reference for investors to invest rationally under the different stock market states.