Investor sentiment and stock returns: Wenchuan Earthquake

Liwei Shan and Stephen Gong

Finance Research Letters, 2012, vol. 9, issue 1, 36-47

Abstract: This paper exploits a natural experiment (the Wenchuan Earthquake in China) to study the effects of investor sentiment on stock returns. We find that during the 12months following the earthquake, stock returns are significantly lower for firms headquartered nearer the epicenter than for firms further away. Further analyses indicate that this pattern of stock returns does not exist before or long after the earthquake, and cannot be explained by actual economic losses or a change in systematic risk. Overall, our evidence is consistent with the interaction of local bias and investor sentiment affecting stock returns.

Keywords: Stock Returns; Earthquake; Behavioral finance; Sentiment; Local bias; Disasters (search for similar items in EconPapers)
JEL-codes: G10 G11 G12 G14 (search for similar items in EconPapers)
Date: 2012
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (27)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:9:y:2012:i:1:p:36-47

DOI: 10.1016/j.frl.2011.07.002

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