The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model
In March 2020, four consecutive circuit breakers in the US stock market underscored the impact of investor sentiment on the stock market. With the development of technology, public opinion and other information now spread easily through social media and other channels, indirectly affecting investor...
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| Format: | Article |
| Language: | English |
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Wiley
2021-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/5520276 |
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| author | Yutao Chen Shuzhen Zhu Haoyuan He |
| author_facet | Yutao Chen Shuzhen Zhu Haoyuan He |
| author_sort | Yutao Chen |
| collection | DOAJ |
| description | In March 2020, four consecutive circuit breakers in the US stock market underscored the impact of investor sentiment on the stock market. With the development of technology, public opinion and other information now spread easily through social media and other channels, indirectly affecting investor sentiment. This makes it important to understand the underlying dynamics of such situations to help manage the market impact of such events going forward. To that end, we analyze investor sentiment, investor structures, and the capital market fuse mechanism using infectious disease dynamics. We use an extension of the SIR (susceptible, infectious, and recovered) model, called the dynamic SIRS model (where individuals return to a susceptible state), to simulate the impact of investor sentiment on the stock market. Accordingly, we study the circuit breakers in the US stock market and the simulation results of the model to analyze the fuse mechanism process in China that triggers a pause in the market based on volatile trading. The results of our study show that when the influence rate of investor mutual communication increases or when the emotional calm rate decreases, investor emotions will start to diffuse, leading to an increase in the probability of either a serious stampede or zealous overbuying in the stock market. At the same time, the trading frequency of investors and the ratio of investors in both buying and selling directions will have a certain formal impact on the direction of the stock market, with the final impact determined by the ratio of normal investors to emotional investors. When emotional investors dominate the market, their emotions are diffused throughout. Our study provides the reference for relevant agencies to monitor and improve the stock market fuse mechanism in the future. |
| format | Article |
| id | doaj-art-9c5750f9f1b64959bbd77f9228124ca0 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-9c5750f9f1b64959bbd77f9228124ca02025-02-03T01:27:01ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/55202765520276The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease ModelYutao Chen0Shuzhen Zhu1Haoyuan He2Glorious Sun School of Business & Management, Donghua University, Shanghai 20051, ChinaGlorious Sun School of Business & Management, Donghua University, Shanghai 20051, ChinaUniversity of Illinois, Urbana Champaign, Urbana, IL 61820, USAIn March 2020, four consecutive circuit breakers in the US stock market underscored the impact of investor sentiment on the stock market. With the development of technology, public opinion and other information now spread easily through social media and other channels, indirectly affecting investor sentiment. This makes it important to understand the underlying dynamics of such situations to help manage the market impact of such events going forward. To that end, we analyze investor sentiment, investor structures, and the capital market fuse mechanism using infectious disease dynamics. We use an extension of the SIR (susceptible, infectious, and recovered) model, called the dynamic SIRS model (where individuals return to a susceptible state), to simulate the impact of investor sentiment on the stock market. Accordingly, we study the circuit breakers in the US stock market and the simulation results of the model to analyze the fuse mechanism process in China that triggers a pause in the market based on volatile trading. The results of our study show that when the influence rate of investor mutual communication increases or when the emotional calm rate decreases, investor emotions will start to diffuse, leading to an increase in the probability of either a serious stampede or zealous overbuying in the stock market. At the same time, the trading frequency of investors and the ratio of investors in both buying and selling directions will have a certain formal impact on the direction of the stock market, with the final impact determined by the ratio of normal investors to emotional investors. When emotional investors dominate the market, their emotions are diffused throughout. Our study provides the reference for relevant agencies to monitor and improve the stock market fuse mechanism in the future.http://dx.doi.org/10.1155/2021/5520276 |
| spellingShingle | Yutao Chen Shuzhen Zhu Haoyuan He The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model Discrete Dynamics in Nature and Society |
| title | The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model |
| title_full | The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model |
| title_fullStr | The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model |
| title_full_unstemmed | The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model |
| title_short | The Influence of Investor Emotion on the Stock Market: Evidence from an Infectious Disease Model |
| title_sort | influence of investor emotion on the stock market evidence from an infectious disease model |
| url | http://dx.doi.org/10.1155/2021/5520276 |
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