Abstract
In recent years, East Asia's stock markets are often subject to the global financial crisis and generate shocks, while the shocks are far more than the magnitude of the changes in theirs fundamentals. This phenomenon is difficult to explain by the traditional efficient market theory. Therefore, this study adopts Schmeling (2009)’s research method which sees the consumer confidence index (CCI) as the investor sentiment to construct the investor sentiment index of four major Asia countries including Taiwan, Japan, South Korea and China, and a region-wide investor sentiment. The main purpose of this research is to discuss the impact of region-wide investor sentiment and individual countries investor sentiment on stock market returns. This study also adopts consumer confidence index (CCI) to construct the worldwide investor sentiment index based on the major six industrial countries of the world including America, England, France, Germany, Italy and Japan. Furthermore, this study analyzes whether the worldwide investor sentiment index and the investor sentiment of individual countries have the impact on stock market return. This study discovers that the investor sentiment index have negative significance influence on stock market return in Asia countries except for China. In China, it displays positive significance impact on stock market return. For the sources of investor sentiment, Japan stock market return is mainly affected by the worldwide investor sentiment. South Korea stock market return is mainly affected by the investor sentiment of neighboring countries. Taiwan stock market return is also mainly affected by the investor sentiment of neighboring countries and the domestic investor sentiment. Finally, China stock market return is mainly dominated by the domestic investor sentiment. Moreover, this study also analyzes long-short portfolio return which is constructed based on the firm size and the volatility of stock price. The result shows that the investor sentiment does not have the consist influence on different countries’ size premium in Asia. In addition, in Asia, the investor sentiment has negative significance on the volatility premium except for China.