Abstract: The paper uses the time-varying parameter vector autoregressive model to reveal the dynamic relationship among economic cycle, market sentiment and asset price in different economic cycle situations. The empirical results show that：investors′ market sentiment is closely related to the fluctuation of economic cycle, moreover, it has a significant impact on asset prices, and the direction and intensity of the influence vary with the economic cycle; there is a strong feedback mechanism between asset price and market sentiment, and asset price will influence economy through such factors as wealth effect and liquidity effect, and investors′ behavior has obvious herd effect and profit-holding deficit; at present, China′s stock market cycle and economic cycle are not fully synchronized, although the increase in stock index yields has a role in promoting the actual output of economy, this role has not yet been fully played.

Key words: economic cycle, market sentiment, asset price, time-varying parameter vector autoregressive