Chinese institutional investors’ sentiment |
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Authors: | Gerhard Kling Lei Gao |
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Institution: | aBristol Business School, Coldharbour Lane, Bristol BS16 1QY, UK;bSchool of Business, Shantou University, Shantou 515063, PR China |
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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. |
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Keywords: | Shanghai stock exchange Institutional investor Investors’ sentiment |
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