This paper creates an investor sentiment index for the Chinese stock market based on the method of Baker and Wurgler. After construction of investor sentiment index, I perform an eyeball test and find similar trend for investor sentiment index and the SSE composite index. Deeper analysis using the granger causality test proves that the change of SSE composite index could lead to the change of investor sentiment index which can be explained by the “policy market” characteristics of Chinese stock market. In order to investigate the effect of investor sentiment on stock returns in terms of different styles of the company, I run a single-factor model and the sentiment beta results show that the change of investor sentiment has significant different effect on the return of stock with different market characteristics such as price, P/E ratio and P/B ratio. It is consistent with the market anomality that behavior finance has demonstrated such as low price effect and herd effect. Overall, it is important for us to take investor sentiment into consideration when investing in the market.