Sentiment and Futures Returns in Chinese Agricultural Futures Markets

This study investigates the sentiment effect in the Chinese agricultural futures market by constructing market-level and future-level futures sentiment indices. First, our findings reveal that sentiment in futures and the domestic stock market has a significant and positive impact on future-level sentiment, especially during bull markets, whereas sentiment in the global stock market has minimal influence. Second, an analysis of the relationship between sentiment and futures returns indicates that sentiment, both at the market and future levels, strongly and favorably influences the movement of futures returns. Third, after decomposing the future-level sentiment into contagious sentiment and idiosyncratic sentiment, this paper concludes that contagious sentiment and idiosyncratic sentiment positively affect futures returns in both bull and bear markets. Overall, this research provides clear evidence that sentiment plays a crucial role in determining agricultural futures returns and offers guidance to regulators to identify potential market bubbles and implement “sentiment regulation.†JEL Classification: G12, G14.