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Mathematical Problems in Engineering
Volume 2014, Article ID 545723, 11 pages
Research Article

An Empirical Study of the Effect of Investor Sentiment on Returns of Different Industries

1School of Mathematics and Computing Science, Changsha University of Science and Technology, Changsha 410114, China
2Academy of Mathematics and Systems Science, Chinese Academy of Science, Beijing 10090, China
3School of Economics and Management, Changsha University of Science and Technology, Changsha 410114, China
4School of Business, Central South University, Changsha, Hunan 410083, China

Received 11 December 2013; Accepted 12 February 2014; Published 17 April 2014

Academic Editor: Fenghua Wen

Copyright © 2014 Chuangxia Huang et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.


Studies on investor sentiment are mostly focused on the stock market, but little attention has been paid to the effect of investor sentiment on the return of a specific industry. This paper constructs a proxy variable to examine the relationship between investor sentiment and the return of a specific industry, using the Principle Component Analysis, and finds that investor sentiment is positively correlated with the industry return of the current period and negatively correlated with that of one lag period; we classify investor sentiment as optimistic state and pessimistic state and find that optimistic investor sentiment has a positive effect on stock returns of most industries, while pessimistic investor sentiment has no effect on them; this paper further builds a two-state Markov regime switching model and finds that sentiment has different effect on different industries returns on different states of market.