The cross-section and time-series effects of individual stock sentiment on stock prices

Jinfang Li and Chunpeng Yang

Applied Economics, 2017, vol. 49, issue 47, 4806-4815

Abstract: In this article, we construct an individual stock sentiment index by using the principal component analysis method. We empirically study the cross-section and time-series effects of investor sentiment on the stock prices based on the panel data model with dummy variable. The results indicate that individual stock sentiment has greater impact on small-firm stock prices than big-firm stock prices, which presents obvious cross-section effect. Moreover, individual stock sentiment leads to much sharper fluctuations of stock prices in the stock market downturn than in the stock market expansion, which shows obvious time-series effect. Specifically, the individual stock sentiment has the greatest impact on small-firm stock prices under the stock market downturn, exerting significant dual asymmetric effect. Our results are helpful to understanding the micro-mechanism of sentiment effect.

Date: 2017
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DOI: 10.1080/00036846.2017.1293795

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