DO INVESTOR SENTIMENTS DRIVE STOCK RETURNS? EVIDENCE FROM CSI300 FUTURES

Leila Douch, Fodil Benkhaldi, Mohammed Boumediene

Abstract


The impact of investor sentiment on stock prices has long been debated in financial economics, sparking discussions between traditional and behavioral finance. This study aims to analyze the effect of individual investors' emotions on stock market returns in Shanghai and Shenzhen, utilizing the DCC-GARCH model. By examining daily investment return series data for the joint index of both stock exchanges, the CSI300 futures return, during the period (2010-2020), the study provides insights into how investor sentiment shapes market trends. Additionally, a specialized index, constructed using the PCA method, is a key indicator for investors' emotions in China. The findings reveal a strong positive effect of investor sentiment on stock market performance, highlighting its role in driving price movements. Furthermore, the study identifies a significant positive dynamic conditional correlation between investor sentiment and stock returns for the CSI300 futures index. These results emphasize the importance of behavioral finance in understanding market dynamics, as emotional biases continue to influence stock volatility and long-term investment trends.


Keywords


Behavioral finance, CSI300 futures index, Financial markets, Investor sentiment, Stock return

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References


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DOI: http://dx.doi.org/10.12709/mest.13.13.02.07

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