The influence of Investor Sentiment on Risk and Return Relationship in China's Fund Market

• 1、School of Finance and Statistics,Hunan University,Changsha 410000

Abstract：The main body of investors in China's securities market is individual investors. Individual investors are weaker than institutional investors in terms of professionalism and information acquisition, so their investment behavior is easily affected by emotions. In order to measure investor sentiment, and analyze the impact of investor sentiment on the changes in China's fund market returns. This paper constructs the investor's compound sentiment index by partial least squares method, and finds whether the investor's sentiment is the Granger cause of the market return rate through the Granger causality test of the market return rate, and uses the GARCH(1,1) model to predict the rate of return. Volatility, testing the impact of investor sentiment on the "risk-benefit" relationship in the fund market during periods of low sentiment and high sentiment.The empirical results show that investor sentiment is the Granger reason of market return rate. The change of market return rate is mainly driven by investor sentiment; in general, China's fund market shows a significant positive correlation between "risk-benefit". And the relationship between investor sentiment and "risk-benefit" does exist. Investors must pay attention to factors such as investor sentiment in the investment process.

Keywords： behavioral finance Partial least squares Investor sentiment fund market