Investor Sentiment Dynamics and Phase Transitionof Stock Market

10.6704/JMSSD.2013.10.4.70

Yong Fang

Investor Sentiment Dynamics ； Phase Transition ； Crisis ； Crit ical Point ； Stock Market

管理科學與統計決策

10卷4期（2013 / 12 / 01）

70 - 85

英文

This paper attempts to discuss the relationship between investor sentiment dynamics and phase transition of stock market, and make some useful exploration on crisis and critical point forecast using investor sentiment under the context of the Chinese stock market. Investor sentiment is extracted from five proxy variables using the dynamic factor model (DFM); further pure sentiment that is orthogonal to macro -economy is obtained. Empirical analyses reveal that the more ardent is the sentiment, the less is the future market return, and the bigger is the probability that future market return is negative. Moreover, the impact of sentiment on the magnitude and sign of future market return strengthens with the increase in the holding period. Excessively rising market sentiment might raise the risk of occurrence of phase transition and even crisis. Finally, some patterns of sentiment dynamics prior to the critical point are discovered.

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