An Empirical Study on Investor Sentiment and the Asymmetric Volatility of Market Returns

Behavioral finance theory holds that investors may make unreasonable decisions or take the irrational decision-makings due to the emotional impact of cognitive bias. and the asymmetric volatility phenomenon of stock market return is a normalcy. in this paper, the investor sentiment factor is introduced into the study of stock return volatility and the relationship between investor sentiment and the asymmetry of return volatility is discussed through the establishment of EGARCH-M model and STR model mainly from the perspective of nonlinear. The empirical results uncover that investor sentiment is a systematic influence factor of market return's asymmetry volatility. Optimistic sentiment arouses greater impact on asymmetric volatility of market returns than pessimistic sentiment. the non-symmetry of volatility is mainly derived from the nonlinear component and the irrational component of sentiment can significantly strengthen this asymmetry