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Based on five original sentiment indicators in Hong Kong stock market, including the closed-end fund discount rate, the average first-day returns of initial public offering (IPO), the number of IPO, the market trading volume and turnover, this paper uses the principal component analysis method to calculate a comprehensive investor sentiment index. After excluding the trend and seasonal factors from the comprehensive investor sentiment index and Hong Kong Hang Seng Index by autoregressive moving average-generalized autoregressive conditional heteroskedasticity (ARMA-GARCH) family models, this paper makes correlation analysis and Granger causality test on the residuals of ARMA-GARCH model. The study shows that ARMA-GARCH models can effectively process the autocorrelation and heteroscedasticity of investor sentiment index and Hong Kong Hang Seng Index. Also, it indicates that the Hang Seng index return is the Granger cause of investor sentiment in short terms while not in long terms. That is to say investor sentiment would be more optimistic in short terms when the Hong Kong stock market goes up, and vice versa. [ABSTRACT FROM AUTHOR]

It is one debating point between traditional and behavioral financial theories why momentum effect persists in most financial markets. In view of Chinese stock markets' features, this paper constructs "relative price" momentum portfolios based on "anchoring bias" and "disposition effect" in behavioral financial theories, and explores the relationship among these new momentums and classical momentums. The results show after controlling the classical momentum effect and systematic risk factors, the relative price momentum effect still exists. However, after controlling the relative price momentum effect, the classical momentum effect disappears. If considering transaction costs, investors could not benefit from the momentum strategies. These findings indicate that "anchoring bias" and "disposition effect" are important reasons of momentum effect in Chinese stock markets' features, and high transaction costs hinder the arbitrary. [ABSTRACT FROM AUTHOR]