Research on Emotional Leverage Effect of Capital Flow of Well-known Investment Institutions

China’s capital market started late, compared with developed countries, China’s individual investors account for a larger proportion. Because individual investor does not have the specialized investment knowledge and the mature investment psychology, its investment behavior often will receive the external factor the interference to produce “The herd effect”, therefore, the well-known investor institutions can rely on the reputation effect brought by their own popularity to influence the stock price fluctuation by influencing the investor sentiment, thus exceeding the influence degree of the corresponding buying and selling fund flow. This paper defines the above process as the emotional leverage effect of well-known investment institutions. In this paper, we use principal component analysis to construct the index of investor sentiment, and use correlation test to find that the well-known investment institutions, by virtue of their own reputation, make their capital flow have a significant impact on investor sentiment, there is a significant positive correlation between investor sentiment and the fluctuation of individual stock prices in the industry. Small and medium-sized investors will suffer investment losses because of their blind faith in the trading strategies of well-known institutions. In order to further enhance the protection of investors’ interests, this paper puts forward suggestions to improve the protection mechanism of small and medium-sized investors’ rights and interests from the perspective of information disclosure and policy supervision.