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.
|Number of pages||14|
|Journal||Journal of International Financial Markets, Institutions and Money|
|Early online date||10 Apr 2007|
|Publication status||Published - Oct 2008|
- Shanghai Stock Exchange
- Institutional investor
- Investors' sentiment