Documentary Research of Investor Sentiments and Investment Returns in China’s Stock Market
Article Sidebar
Main Article Content
Abstract
This study investigates the impact of investor sentiment on stock returns, focusing on the contrasting effects of retail and institutional investors' bullish sentiment in China's CSI 300 listed companies from 2015 to 2023. Investor sentiment, as a critical psychological factor in financial markets, plays a significant role in shaping stock performance. The research aims to uncover how retail and institutional investors' sentiment influences stock returns, the underlying mechanisms driving these effects, and the heterogeneity of these impacts across different types of enterprises. Using a comprehensive dataset, the study employs robust empirical methodologies to analyze the relationship between investor sentiment and stock returns, while also conducting mechanism and heterogeneity analyses to provide deeper insights.
The findings reveal three key results. First, retail investors' bullish sentiment negatively impacts stock returns, whereas institutional investors' bullish sentiment has a positive effect, a conclusion that remains consistent across various robustness tests. Second, the mechanism analysis demonstrates that investor sentiment affects stock returns primarily through its influence on analysts' attention and stock liquidity. Third, heterogeneity analyses indicate that the negative impact of retail investors' sentiment is more pronounced in non-state-owned enterprises, manufacturing firms, and non-heavily polluted industries. Conversely, the positive impact of institutional investors' sentiment is stronger in non-state-owned enterprises, non-manufacturing firms, and heavily polluted industries.
In a nutshell, the study contributes to the literature in two significant ways. First, it enriches the understanding of the economic consequences of retail and institutional investor sentiment, particularly in the context of emerging markets. Second, it deepens the knowledge of factors influencing stock returns, offering practical implications for optimizing investment strategies and mitigating risks. By expanding the scope of research on stock returns and investor sentiment, this paper provides valuable insights for both academic research and practical investment decision-making.
Article Details
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
Views and opinions appearing in the Journal it is the responsibility of the author of the article, and does not constitute the view and responsibility of the editorial team.
References
Amihud, Y., & Mendelson, H. (1986). Asset pricing and the bid-ask spread. Journal of Financial Economics, 17(2), 223-249.
Baker, M., & Wurgler, J. (2006). Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645-1680.
Bashir, U., Kayani, U. N., Khan, S., Polat, A., Hussain, M., & Aysan, A. F. (2024). Investor sentiment and stock price crash risk: The mediating role of analyst herding. Computers in Human Behavior Reports, 13, 100371.
Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1-27.
Cakici, N., & Zaremba, A. (2024). What drives stock returns across countries? Insights from machine learning models. International Review of Financial Analysis, 96, 103569.
Cheema, M. A., & Fianto, B. A. (2024). Investor sentiment and stock market anomalies: Evidence from Islamic countries. Pacific-Basin Finance Journal, 88, 102557.
De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703-738.
Debata, B., Dash, S. R., & Mahakud, J. (2018). Investor sentiment and emerging stock market liquidity. Finance Research Letters, 26(9), 15-31.
Dong, L., Zhang, X., & Chen, J. (2024). Does investor sentiment drive corporate green innovation: evidence from China. Sustainability, 16(8), 3220.
Fama, E. F., & French, K. R. (2015). A five-factor asset pricing model. Journal of Financial Economics, 116, 1-22.
Kontoghiorghes, A. P. (2024). Do personal taxes affect investment decisions and stock returns?. Journal of Financial Economics, 162, 103927.
Korsah, D., & Mensah, L. (2024). Geopolitical risk, economic policy uncertainty, financial stress, and stock returns nexus: Evidence from African stock markets. Journal of Capital Markets Studies, 8(1), 25-42.
Kumar, A., & Lee, C. M. C. (2006). Retail investor sentiment and return comovement. Journal of Finance, 61, 2451-2486.
Ma, F., Wu, H., & Zeng, Q. (2024). Biodiversity and stock returns. International Review of Financial Analysis, 95A, 103386.
Rohilla, A., Tripathi, N., & Bhandari, V. (2023). Does investor's sentiment affect industries' return?–A case of selected Indian industries. Business Analyst Journal, 44(2), 106-127.
Shah, S. F. (2024). Has the heterogeneity of culture, investor sentiment and uncertainty altered bank stock returns in the MENA region?. Journal of Economic Studies, 51(3), 649-666.
Yaakoubi, S. (2024). Investor sentiment and skewness risk premium. Applied Economics, Taylor & Francis Journals, 56(35), 4194-4208.
You, C., & Wang, J. (2024). Investor sentiment, financing constraints, and earnings persistence. Emerging Markets Finance and Trade, 60(6), 1148-1161.
