Analysis of the Role of Investor Sentiment on Expected Returns Under CAPM Model Based on Behavioral Finance Perspective

Hangyu Liu ()
Additional contact information
Hangyu Liu: Southwestern University of Finance and Economics, School of Finance, Institute of Chinese Financial Studies

A chapter in Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025), 2025, pp 144-156 from Springer

Abstract: Abstract In the financial market, the impact of investor sentiment on investment decisions is crucial and challenges the assumptions of classical financial theories. From the perspective of behavioral finance, this study constructs an investor sentiment indicator using monthly data of the Chinese A-share market from 2010 - 2023 as a sample and empirically analyzes it using a multiple linear regression model. Based on the CAPM model, this study further introduces control variables and interaction terms to explore the mechanism of investor sentiment on asset pricing. The empirical results show that irrational behavior triggered by investor sentiment interferes with asset pricing, and investor sentiment is significantly negatively related to expected return. Split-sample analysis further reveals that stock prices of small-capitalization firms are more significantly affected by sentiment, but large-capitalization firms will face a stronger negative impact. In addition, the negative effect of investor sentiment on expected returns is more pronounced in the case of lower institutional ownership, which may also be related to the difference in the stability of different market players under sentiment shocks.

Keywords: Investor sentiment; Expected return; Capital Asset Pricing Model (CAMP); Behavioral finance (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:advbcp:978-94-6463-835-6_17

Ordering information: This item can be ordered from
http://www.springer.com/9789464638356

DOI: 10.2991/978-94-6463-835-6_17

Access Statistics for this chapter

More chapters in Advances in Economics, Business and Management Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().