WSEAS Transactions on Mathematics
Print ISSN: 1109-2769, E-ISSN: 2224-2880
Volume 14, 2015
Index Pricing Model Embedding Investor Sentiment: Based on Path Converged Design
Authors: ,
Abstract: This paper proposes an index pricing method to model the risk premium of market, industry and area for individual stocks. The individual stocks of Shanghai Index 50 in China’s stock market are selected. Path converged design is employed to construct three time-varying coefficient semi-parameter regression models for each stock. The three models are base model excluding investor sentiment, path model I including investor sentiment of each individual stock and path model II including investor sentiments of indexes. As the empirical result, the path models explain the fluctuation of individual stocks better than the base model, which means that investor sentiment is an important factor for asset pricing. Furthermore, pricing errors analysis is carried out. The result shows that index pricing model plays an important role in the determination of individual stock’s rational prices and it may contribute to trading strategy construction for programming trading. The paper is an effective modeling trial of asset pricing in the nonparametric frame.
Search Articles
Keywords: Investor sentiment, Index pricing model, Path converged design, Pricing error analysis, Nonparametric estimation
Pages: 202-212
WSEAS Transactions on Mathematics, ISSN / E-ISSN: 1109-2769 / 2224-2880, Volume 14, 2015, Art. #19