A nonlinear Granger causality test between stock returns and investor sentiment for Chinese stock market: a wavelet-based approach |
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| Authors: | Xiaojun Chu Chongfeng Wu Jianying Qiu |
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| Institution: | 1. School of Economics and Management, Nanjing University of Information Science &2. Technology, Nanjing 210044, China;3. Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200052, China;4. Antai College of Economics and Management, Shanghai Jiao Tong University, Shanghai 200052, China;5. Department of Economics, Institute of Management Research, Radboud University, Nijmegen, The Netherlands |
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| Abstract: | In this article, we re-examine the causality between the stock returns and investor sentiment in China. The number of net added accounts is used as a proxy for investor sentiment. To mimic the different investment horizons of market participants, we use the wavelet method to decompose stock returns and investor sentiment into time series with different frequencies. Additionally, we test for nonlinear causal relationships based on Taylor series approximation. Our results indicate that there is a one-directional linear causality from stock returns to investor sentiment on the original series, while there is a strong bi-directional nonlinear causality between stock returns and investor sentiment at different timescales. |
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| Keywords: | Returns investor sentiment wavelet method nonlinear Granger causality |
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