Abstract: Under the hypothesis that investors are risk averters whose risk aversion degree is affected by the sentiment, taking the utility maximization as the investors’ decision objection,the effect mechanism of investor sentiment on the portfolio structure and the return-risk relationship of portfolio by setting up a portfolio model based on the investor sentiment theoretically is studied in this paper. The results show that investors will buy the excess risk asset by bank lending when they are over-optimistic, distribute the proportion of the free-risk assets and risk assets reasonably when they are relatively rational, and short risk assets when they are pessimistic. In addition, the expected excess return of portfolio is positively related to its risk when investors are over-optimistic or relatively rational, and negatively related to its risk when investors are pessimistic.All in all,in this paper,the previous relevant research conclusions are modified, and the traditional portfolio theory is expanded and deepened in a certain degree.

Key words: investor sentiment, portfolio, return-risk relationship