STAR-GARCH Model and Nonlinearity of Investment Strategies of Chinese Stock Markets

According to the theory of heterogeneous agent and behavioral finance,this paper firstly makes an empirical study of nonlinear transition investment strategies of Chinese stock market.The results are shown as follows.Firstly,there exist significant two regimes about investment strategies of Chinese stock markets,and therefore heterogeneous agents are shown significantly in Chinese stock markets.Secondly,when investor sentiment index amounts to 0.06 and 0.046 respectively,investment strategies of Hu and Shen stock markets are in the state of middle regime,and the rational investment strategy is preferred.When investor sentiment index is more than 0.6 or less than -0.5 or so respectively, investment strategies of Hu and Shen stock markets are in the state of outer regime,and the noise trade investment strategy is preferred.Nonlinear transition is happened between two regimes.Finally,when investment strategy in the middle regime,there is a less daily averaged volatility,and therefore the markets are more stable.