How does sentiment affect the stock market?

First, market sentiment is understood as a collection of various biases, known and unknown, discussed and unsaid, and sometimes not even due to psychological biases, but cultural biases, which may cause you to like or dislike a stock too much, which will cause the market sentiment of the stock to be too high or too low.

A. How does mood affect the rate of return?

Now let’s first talk about a concept that affects people’s demand for stocks or expectations, that is, people’s mood.

Generally speaking, if you are in a good mood during this period, the rate of return on stocks will be higher during the same period; but because you are in an overly good mood now, the rate of return will slowly come back in the future.

So, let's first see if there is such an effect during the same period. When you are in a better mood during this period, will the stock return rate be higher? If we can guess that everyone's mood is relatively better during a certain period of time, then during this period of time, the stock return rate will be higher. We can buy the stock before everyone's mood gets better, and when everyone's mood starts to get worse, you can sell the stock. This is a simple idea.

B. What can affect mood? As long as it affects mood, we have reason to believe that it will affect the stock return. There are too many factors that affect mood. Let me give you a few examples. For example, research has found that if you win a major game, the stock return on that day will be 0.5% higher than normal.

C. There are other factors that can also affect mood. On cloudy days, people may not be in such a good mood, and they may be relatively depressed. As long as it is cloudy in that small area of ​​Manhattan Island, the return rate of the entire stock market will be low. You don’t have to look at the weather in the whole United States, because more traders, especially in the early days, are in Manhattan, so this will also affect the return rate of stocks.

Then let me ask you again, from Monday to Friday, which day do you think people are in a better mood? Everyone would think that Friday is better than Monday, because after Friday it is the weekend; on Monday, there is still a week of work to do, so people may not be in such a good mood.

Second, the research found that the closing price on Friday is relatively high, and the opening price on Monday is relatively low. Therefore, on average, the return rate of the entire weekend is a negative number, because people are not in such a good mood on Monday.

Sometimes, your mood is affected, and you may not realize it yourself, but it has already been reflected in the stock market. In the early days, China also had summer time and winter time, but in the United States and Europe, summer time and winter time have always been in place. In April and October, the time will be adjusted forward or backward, so that energy can be saved.

Generally, the time is adjusted at 2 a.m. on Sunday morning, and the sleep of people across the country is affected by one hour. In this case, everyone's sleep may be disrupted, and their mood will also be affected. You may not realize it, but can it be reflected in the stock market?

Third, we look at different indexes in the stock market, such as the Dow Jones Index and the S&P 500 Index. They all have an impact. On average, the return rate of the entire stock market that weekend is about 0.5% lower than that of a normal weekend. The effects of different indexes are not the same, but the average is about 0.5%. You see, this is also a big impact, because the time adjustment causes everyone's mood to change. This effect is not only in the United States, but also in the United Kingdom and Germany.