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A PLS Approach to Measuring Investor Sentiment in Chinese Stock Market

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  • Gang He
  • Shuzhen Zhu
  • Haifeng Gu

Abstract

We select five objective sentiment indicators and one subjective sentiment indicator to build investor sentiment composite index in Chinese stock market by using the partial least squares. The reason why we do that is to improve the shortcomings of the principal component analysis, which was adopted to build investor sentiment composite index in the pioneering research. Moreover, due to the large proportion of individual investors in Chinese stock market and the rapid change of investor sentiment, we innovatively use the weekly data with smaller information granularity and higher frequency. Through empirical tests for its reasonability and market’s predictive capability, we find that this index appears to fit the data better and improves prediction.

Suggested Citation

  • Gang He & Shuzhen Zhu & Haifeng Gu, 2017. "A PLS Approach to Measuring Investor Sentiment in Chinese Stock Market," Discrete Dynamics in Nature and Society, Hindawi, vol. 2017, pages 1-6, August.
    • Handle: RePEc:hin:jnddns:2387543
    DOI: 10.1155/2017/2387543
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    Cited by:

    1. Pedro Manuel Nogueira Reis & Carlos Pinho, 2021. "A Reappraisal of the Causal Relationship between Sentiment Proxies and Stock Returns," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 22(4), pages 420-442, October.
    2. Muhammad MOHSIN & Sobia NASEEM & Larisa IVAȘCU & Lucian-Ionel CIOCA & Muddassar SARFRAZ & Nicolae Cristian STĂNICĂ, 2021. "Gauging the Effect of Investor Sentiment on Cryptocurrency Market: An Analysis of Bitcoin Currency," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 87-102, December.

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