Effects of investor sentiment on stock volatility: new evidences from multi-source data in China’s green stock markets

Yang Gao (), Chengjie Zhao (), Bianxia Sun () and Wandi Zhao ()
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Yang Gao: Beijing University of Technology
Chengjie Zhao: Beijing University of Technology
Bianxia Sun: Southern University of Science and Technology
Wandi Zhao: Capital University of Economics and Business

Financial Innovation, 2022, vol. 8, issue 1, 1-30

Abstract: Abstract The effect of investor sentiment on stock volatility is a highly attractive research question in both the academic field and the real financial industry. With the proposal of China's "dual carbon" target, green stocks have gradually become an essential branch of Chinese stock markets. Focusing on 106 stocks from the new energy, environmental protection, and carbon–neutral sectors, we construct two investor sentiment proxies using Internet text and stock trading data, respectively. The Internet sentiment is based on posts from Eastmoney Guba, and the trading sentiment comes from a variety of trading indicators. In addition, we divide the realized volatility into continuous and jump parts, and then investigate the effects of investor sentiment on different types of volatilities. Our empirical findings show that both sentiment indices impose significant positive impacts on realized, continuous, and jump volatilities, where trading sentiment is the main factor. We further explore the mediating effect of information asymmetry, measured by the volume-synchronized probability of informed trading (VPIN), on the path of investor sentiment affecting stock volatility. It is evidenced that investor sentiments are positively correlated with the VPIN, and they can affect volatilities through the VPIN. We then divide the total sample around the coronavirus disease 2019 (COVID-19) pandemic. The empirical results reveal that the market volatility after the COVID-19 pandemic is more susceptible to investor sentiments, especially to Internet sentiment. Our study is of great significance for maintaining the stability of green stock markets and reducing market volatility.

Keywords: Internet sentiment; Trading sentiment; Realized volatility; Mediating effect (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 (search for similar items in EconPapers)
Date: 2022
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Citations: View citations in EconPapers (8)

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DOI: 10.1186/s40854-022-00381-2

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