How investor sentiment affects the risk of stocks

Abstract

With the advent of the information age, the Internet has played an increasingly important role in our lives. We use the Internet for information dissemination, gaming and entertainment. This has led to a huge amount of information on the Internet every day. Many scholars have found that there is a certain correlation between network information and the securities market. Based on the research of the scholars, this paper further analyzes how investor sentiment in online information affects the risk of individual stocks and how do emotions affect the risk of individual stocks? The object of this study is the investor sentiment represented by the information on the stock bar forum and the 50 constituent stocks corresponding to the Shanghai Composite 50 Index. The specific approach is to use self-written reptiles to collect data on all postings of the 50 constituent stocks of the Shanghai Composite Index over the past two years, and use appropriate algorithms to divide posts into four categories named "positive", "negative", "Flat" and "excluded". Each post is assigned its weight by the amount of its corresponding browse volume, and a variable of investor sentiment index is constructed. Then, using this indicator, the quantile regression is performed on the log yields of the 50 stocks and the Shanghai 50 Index respectively, the relationship between investor sentiment and VaR is observed. Empirical results: VaR will increase when investor sentiment rises and VaR will decrease when investor sentiment deteriorates. At the same time, investor sentiment has lagged effects on VaR, and investor's short-term and long-term effects on VaR different with each other. This article’s innovation: Prior to this, the academic community mainly discussed the relationship between investor sentiment and stock market, but did not further discuss the risk relationship between them. This article will discuss the risk relationship and further explore the reasons for promoting or inhibiting risk.