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Sentiment Dispersion and Asset Pricing Error: Evidence from the Chinese Stock Market

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  • Xiong Xiong
  • Jiatong Han
  • Xu Feng
  • Yahui An

Abstract

Previous studies have suggested that the impact of investor sentiment on asset pricing error is determined by the difference between the aggregate sentiment of optimistic and pessimistic investors. This article has found the influence of the in-group sentiment dispersion of optimistic and pessimistic investors on pricing error. We established a two-period model of heterogeneous investors and described the sentiment dispersion of the optimistic and pessimistic groups with the variance of sentiment bias. The results suggested that when the sentiment dispersion of the two groups are identical, the pricing error depends on the aggregate sentiments of the optimistic and pessimistic groups. Conversely, when the two groups have different sentiment dispersion, the pricing error is determined by both the sentiment dispersion ratio and the aggregate sentiment ratio. Finally, data from the Chinese stock market are generated to verify the above conclusions.

Suggested Citation

  • Xiong Xiong & Jiatong Han & Xu Feng & Yahui An, 2020. "Sentiment Dispersion and Asset Pricing Error: Evidence from the Chinese Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 56(4), pages 820-839, March.
    • Handle: RePEc:mes:emfitr:v:56:y:2020:i:4:p:820-839
    DOI: 10.1080/1540496X.2019.1570128
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    Cited by:

    1. Suardi, Sandy & Rasel, Atiqur Rahman & Liu, Bin, 2022. "On the predictive power of tweet sentiments and attention on bitcoin," International Review of Economics & Finance, Elsevier, vol. 79(C), pages 289-301.

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