Chinese institutional investors' sentiment

Gerhard Kling and Lei Gao

Journal of International Financial Markets, Institutions and Money, 2008, vol. 18, issue 4, 374-387

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.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:eee:intfin:v:18:y:2008:i:4:p:374-387

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