Investor Sentiment and Market Risk in China: An Empirical Analysis Based on the CSI Sentiment Index

With the development of behavioral finance, the influence of investor sentiment on financial market risk has attracted increasing attention. Using data from the CSI 300 Index and the CSI Investor Sentiment Index, this study employs regression models to examine the effects of investor sentiment on market volatility and downside risk, measured by Value at Risk (VaR). The empirical results reveal a significant negative relationship between investor sentiment and subsequent VaR, suggesting that higher investor sentiment is associated with greater potential downside risk. Quantile regression analysis further confirms the robustness of this relationship across different risk levels. In addition, market conditions significantly moderate the relationship between investor sentiment and market risk, with the impact becoming more pronounced during bearish market periods. These findings suggest that investor sentiment may serve as a useful forward-looking indicator of financial market risk. Incorporating sentiment-based measures into financial risk monitoring and early-warning systems may therefore help improve market risk management and financial regulation.