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Chinese institutional investors' sentiment

Listed author(s):
  • Kling, Gerhard
  • Gao, Lei

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.

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Article provided by Elsevier in its journal Journal of International Financial Markets, Institutions and Money.

Volume (Year): 18 (2008)
Issue (Month): 4 (October)
Pages: 374-387

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Handle: RePEc:eee:intfin:v:18:y:2008:i:4:p:374-387
Contact details of provider: Web page: http://www.elsevier.com/locate/intfin

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