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How Retail vs. Institutional Investor Sentiment Differ in Affecting Chinese Stock Returns?

Author

Listed:
  • Jiayi Cui

    (Interdisciplinary Studies College, Payap University, Chiangmai 50000, Thailand)

  • Qian Wei

    (School of International Economics and Trade, Guangxi University of Foreign Languages, Nanning 530222, China)

  • Xiang Gao

    (Research Center of Finance, Shanghai Business School, Shanghai 200235, China)

Abstract

This paper evaluates the impact of retail investors’ bullish sentiment in comparison to that of financial institutions on the return of Chinese CSI 300 index stocks over the period of 2015 to 2023. We document several regularities. First, the stronger the retail (institutional) investors’ bullish sentiment, the lower (higher) the stock returns, and such contrasting associations hold after an array of robustness tests. Second, mechanism test results show that the retail and institutional investor sentiments affect stock returns mainly by influencing the analysts’ attention and the equity liquidity. Third, heterogeneity analyses reveal that the adverse effect of retail investors’ bullish sentiment on stock returns becomes more prominent for non-state-owned, manufacturing, and non-heavily polluted enterprises, but the positive effect of the emotions expressed by institutional investors on stock returns is greater for non-state-owned, non-manufacturing, and heavily polluted enterprises. Therefore, this paper sheds light on detailing of investor sentiment types and hedging investment risks.

Suggested Citation

  • Jiayi Cui & Qian Wei & Xiang Gao, 2025. "How Retail vs. Institutional Investor Sentiment Differ in Affecting Chinese Stock Returns?," JRFM, MDPI, vol. 18(2), pages 1-18, February.
    • Handle: RePEc:gam:jjrfmx:v:18:y:2025:i:2:p:95-:d:1589176
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    References listed on IDEAS

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    1. Soumaya Yaakoubi, 2024. "Investor sentiment and skewness risk premium," Applied Economics, Taylor & Francis Journals, vol. 56(35), pages 4194-4208, July.
    2. Abdelaziz, Fouad Ben & Chibane, Messaoud & Kuhanathan, Ano, 2024. "Can corporate social performance mitigate the risk of extreme stock returns?," The Quarterly Review of Economics and Finance, Elsevier, vol. 98(C).
    3. Yang, Ni & Fernandez-Perez, Adrian & Indriawan, Ivan, 2024. "Spillover between investor sentiment and volatility: The role of social media," International Review of Financial Analysis, Elsevier, vol. 96(PA).
    4. Soumaya Yaakoubi, 2024. "Investor Sentiment and Market-Wide Liquidity Pricing," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 25(2), pages 229-243, April.
    5. Kontoghiorghes, Alexander P., 2024. "Do personal taxes affect investment decisions and stock returns?," Journal of Financial Economics, Elsevier, vol. 162(C).
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    Cited by:

    1. Yang, Yiwen & Lin, Yi-Wei & Cheng, Li-Chen, 2025. "Impact of real-time public sentiment on herding behavior in Taiwan's stock market: Insights across investor types and industries," International Review of Economics & Finance, Elsevier, vol. 102(C).

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