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Research on Investor Sentiment and Market Volatility in China’s Stock Market

In: Proceedings of the 2025 International Conference on Financial Innovation and Marketing Management (FIMM 2025)

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  • Sihan Hua

    (Beijing International Studies University, School of Economics)

Abstract

The structure of China’s stock market, dominated by retail investors and characterized by frequent policy interventions, significantly differs from mature markets in terms of how investor sentiment influences market volatility. This paper, grounded in the unique context of China’s capital market, constructs a composite index of investor sentiment (CICSI) that integrates social media text sentiment, trading behavior, and policy shocks. Using high-frequency data from 2010 to 2022, regression analysis is employed to empirically test the time-varying relationship between investor sentiment and market volatility, as well as the moderating effect of policies. The study finds that incorporating sentiment analysis of stock forum comments increases the explanatory power of the sentiment index by 28.6% compared to traditional proxy variables, and policy shocks can trigger sustained structural changes in sentiment indicators. Sentiment has a significant asymmetric effect on market volatility, with the intensity of emotional impact transmission being 1.7 times higher during bull markets than during bear markets. Within 30 trading days after major policy announcements, the marginal impact of sentiment on volatility decreases by 43%, indicating that policy interventions can effectively curb excessive diffusion of sentiment.

Suggested Citation

  • Sihan Hua, 2025. "Research on Investor Sentiment and Market Volatility in China’s Stock Market," Advances in Economics, Business and Management Research, in: Maizaitulaidawati Md Husin (ed.), Proceedings of the 2025 International Conference on Financial Innovation and Marketing Management (FIMM 2025), pages 221-228, Springer.
    • Handle: RePEc:spr:advbcp:978-94-6463-874-5_28
    DOI: 10.2991/978-94-6463-874-5_28
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