Study on the relationship between investor sentiment and stock bubble

The change of investors' sentiment is one of the important factors which can affect the volatility of stock price. However, few studies are related to stock bubble from the perspective of investor sentiment. Based on behavioral finance theory, this paper builds the investor sentiment index by principal component analysis. And, it uses the quarter panel data of listed companies of our country in 2006-2015, explores the relationship of investor sentiment and stock bubble. It indicates: 1) it finds that stock bubble is positively correlated with investor sentiment, new stock accounts, market price earning ratio, the amount of IPO. Meanwhile, the stock bubble is negative correlation with volume of market transactions, market turnover rate. 2) it calculates the fundamental value of the stock by using residual income model, and finds that there are lots of bubbles among the listed companies of our country. The results improve the system of behavioral finance theory, and provides some suggestions for government.