A Study of Multi-Scale Relationship Between Investor Sentiment and Stock Index Fluctuation Based on the Analysis of BEMD Spillover Index

Chen Weiguo (), Zhou Shufen (), Zhang Yin () and Sun Yi ()
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Chen Weiguo: College of Economics and Management, Beijing University of Technology, Beijing100124, China
Zhou Shufen: China Post Group Corporation Limited Training Center, Shijiazhuang050021, China
Zhang Yin: College of Economics and Management, Beijing University of Technology, Beijing100124, China
Sun Yi: School of Finance, Anhui University of Finance and Economics, Bengbu233000, China

Journal of Systems Science and Information, 2021, vol. 9, issue 4, 399-420

Abstract: According to behavioral finance theory, investor sentiment generally exists in investors’ trading activities and influences financial market. In order to investigate the interaction between investor sentiment and stock market as well as financial industry, this study decomposed investor sentiment, stock price index and SWS index of financial industry into IMF components at different scales by using BEMD algorithm. Moreover, the fluctuation characteristics of time series at different time scales were extracted, and the IMF components were reconstructed into short-term high-frequency components, medium-term important event low-frequency components and long-term trend components. The short-term interaction between investor sentiment and Shanghai Composite Index, Shenzhen Component Index and financial industries represented by SWS index was investigated based on the spillover index. The time difference correlation coefficient was employed to determine the medium-term and long-term correlation among variables. Results demonstrate that investor sentiment has a strong correlation with Shanghai Composite Index, Shenzhen Component Index and different financial industries represented by SWS index at the original scale, and the change of investor sentiment is mainly influenced by external market information. The interaction between most markets at the short-term scale is weaker than that at the original scale. Investor sentiment is more significantly correlated with SWS Bond, SWS Diversified Finance and Shanghai Composite Index at the long-term scale than that at the medium-term scale.

Keywords: investor sentiment; spillover index; BEMD algorithm (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bpj:jossai:v:9:y:2021:i:4:p:399-420:n:1

DOI: 10.21078/JSSI-2021-399-22

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