Abstract
We use daily survey data on Chinese institutional investors’ forecasts to measure investors’ sentiment. Our empirical model uncovers that share prices and investor sentiment do not have a long-run relation; however, in the short-run, the mood of investors follows a positive-feedback process. Hence, institutional investors are optimistic when previous market returns were positive. Contrarily, negative returns trigger a decline in sentiment, which reacts more sensitively to negative than positive returns. Investor sentiment does not predict future market movements—but a drop in confidence increases market volatility and destabilizes exchanges. EGARCH models reveal asymmetric responses in the volatility of investor sentiment; however, Granger causality tests reject volatility-spillovers between returns and sentiment.
Original language | English |
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Pages (from-to) | 374-387 |
Number of pages | 14 |
Journal | Journal of International Financial Markets, Institutions and Money |
Volume | 18 |
Issue number | 4 |
Early online date | 10 Apr 2007 |
DOIs | |
Publication status | Published - Oct 2008 |
Keywords
- Shanghai Stock Exchange
- Institutional investor
- Investors' sentiment