On the construction of Chinese stock market investor sentiment index

Abstract

Measuring investor sentiment has become one of the most widely examined areas in behavioral finance. For the purpose of measuring investor sentiment more accurately, we classify the investor sentiment proxy into six market dimensions for the first time, and construct the investor sentiment monitoring index system. By using PCA method and excluding macroeconomic factors, we construct comprehensive investor sentiment index in Chinese stock market. Our results show this index as a good prediction ability to stock market.

Keywords:

• investor sentiment
• monitoring system
• composite index

Public Interest Statement

Investor sentiment is an important research direction of behavioral finance. The question is no longer whether investor sentiment affects stock prices, but rather how to measure investor sentiment and quantify its effects. Several empirical studies have attempted to measure investor sentiment. This paper selected nine corresponding market sentiment proxy indicators from six dimensions for investor sentiment monitoring index system, and construct comprehensive investor sentiment index in Chinese stock market. It shows this investor sentiment index has better prediction function on Shanghai Composite Index.

Additional information

Funding

Funding. The authors received no direct funding for this research.

Notes on contributors

Gang He

Gang He is a doctoral student at the glorious Sun school of business and management at Donghua University. His research focuses on the investor sentiments in capital markets.

Shuzhen Zhu

Shuzhen Zhu is a professor at the glorious Sun school of business and management at Donghua University. Her research focuses on financial risk management.

Haifeng Gu

Haifeng Gu is a professor at the glorious Sun school of business and management at Donghua University. His research focuses on financial risk management and stock market.