Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)

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Analysis of the Role of Investor Sentiment on Expected Returns Under CAPM Model Based on Behavioral Finance Perspective

Authors
Hangyu Liu1, *
1School of Finance, Institute of Chinese Financial Studies, Southwestern University of Finance and Economics, Chengdu, Sichuan, China
*Corresponding author. Email: 42304155@smail.swufe.edu.cn
Corresponding Author
Hangyu Liu
Available Online 17 September 2025.
DOI
10.2991/978-94-6463-835-6_17How to use a DOI?
Keywords
Investor sentiment; Expected return; Capital Asset Pricing Model (CAMP); Behavioral finance
Abstract

In the financial market, the impact of investor sentiment on investment decisions is crucial and challenges the assumptions of classical financial theories. From the perspective of behavioral finance, this study constructs an investor sentiment indicator using monthly data of the Chinese A-share market from 2010 - 2023 as a sample and empirically analyzes it using a multiple linear regression model. Based on the CAPM model, this study further introduces control variables and interaction terms to explore the mechanism of investor sentiment on asset pricing. The empirical results show that irrational behavior triggered by investor sentiment interferes with asset pricing, and investor sentiment is significantly negatively related to expected return. Split-sample analysis further reveals that stock prices of small-capitalization firms are more significantly affected by sentiment, but large-capitalization firms will face a stronger negative impact. In addition, the negative effect of investor sentiment on expected returns is more pronounced in the case of lower institutional ownership, which may also be related to the difference in the stability of different market players under sentiment shocks.

Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

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Volume Title
Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)
Series
Advances in Economics, Business and Management Research
Publication Date
17 September 2025
ISBN
978-94-6463-835-6
ISSN
2352-5428
DOI
10.2991/978-94-6463-835-6_17How to use a DOI?
Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Hangyu Liu
PY  - 2025
DA  - 2025/09/17
TI  - Analysis of the Role of Investor Sentiment on Expected Returns Under CAPM Model Based on Behavioral Finance Perspective
BT  - Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)
PB  - Atlantis Press
SP  - 144
EP  - 156
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-835-6_17
DO  - 10.2991/978-94-6463-835-6_17
ID  - Liu2025
ER  -