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Manager Sentiment Bias and Stock Returns: Evidence from China

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  • Shaoling Chen
  • Tianjue Liu
  • Qing Peng
  • Yu Zhao

Abstract

Using textual analysis of Chinese listed firms from 2004 to 2017, we examine the role that managers’ sentiment plays in financial disclosures and its impact on firms’ future stock returns. We distinguish manager sentiment as either signal or noise according to its consistency with firm earnings. We find that good signal sentiment positively impacts stock returns, whereas bad signal sentiment and noisy sentiment that reflects overconfidence negatively impact stock returns. Further analysis shows that external supervision, internal control, and managers’ expertise contribute to improving the information quality of both signal and noisy sentiments, and the enactment of earnings forecast policy helps strengthen the signaling impact of manager sentiment.

Suggested Citation

  • Shaoling Chen & Tianjue Liu & Qing Peng & Yu Zhao, 2022. "Manager Sentiment Bias and Stock Returns: Evidence from China," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(3), pages 823-836, February.
    • Handle: RePEc:mes:emfitr:v:58:y:2022:i:3:p:823-836
    DOI: 10.1080/1540496X.2021.1918543
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    Cited by:

    1. Xuejun Jin & Jiawei Yu, 2022. "Does communication increase investors’ trading frequency? Evidence from a Chinese social trading platform," Financial Innovation, Springer;Southwestern University of Finance and Economics, vol. 8(1), pages 1-32, December.

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