Influence of Investor Sentiment on Stock Market Price

投资者情绪对股票价格的影响

This paper investigates the impact of investor sentiment on stock prices using two different methodologies. Firstly, a composite sentiment index is constructed using principal component analysis, and its relationship with the Shanghai Composite Index is analyzed. Secondly, a multiple linear regression model is built using the VIX index to examine the effect of investor sentiment on the S&P500 index. Historical data of the two indices is cleaned and processed, and their correlation coefficient is calculated. Results show that both methodologies reveal a significant influence of investor sentiment on stock prices. The VIX index is found to have a negative correlation with the S&P500 index, and the composite sentiment index shows a strong correlation with the Shanghai Composite Index. The paper also provides insights into the time lag effect of market reactions to investor sentiment. Overall, the findings of this study can help investors make more informed decisions and manage risk more effectively.

This paper first finds through literature analysis that the VIX index, known as the panic index, is often used as an indicator of investor sentiment while measuring market volatility expectations. Therefore, this paper uses the VIX index as an indicator of investor sentiment and collects data on the S&P500 and the VIX index from 2007 to 2020 to analyze the impact of investor sentiment on stock market prices.