Does Investor Sentiment Affect Market Volatility? Evidence from China's Commodity Futures Market

Abstract

More and more speculative capital is pouring into the commodity futures market, as a result, the investor sentiment become more susceptible to the market information, some investors may "chasing up and killing down", exacerbating market volatility. This paper uses text mining and Attention-BiLSTM model to analyze the information released by Chinese mainstream financial media, constructs an investor sentiment index of commodity futures markets, and analyses the relationship between investor sentiment and market volatility. We found that there is a U-shaped relationship between the two, meaning that the positive and negative investor sentiment will both exacerbate market volatility. Further research finds that investor sentiment can through investor behavior to affect market volatility. We suggest that regulatory authorities should strengthen monitoring of investor sentiment and establish the investor sentiment warning mechanism to ensure the smooth operation of the market.

Keywords: Investor Sentiment; Market Volatility; Commodity Futures Market; Investor Behavior

DOI: 10.7176/RJFA/16-3-01

Publication date: March 30^th 2025