Chinese Institutional Investors' Sentiment

Posted: 6 Aug 2008 Last revised: 6 Oct 2010

See all articles by Gerhard Kling

Gerhard Kling

University of Aberdeen - Business School

Lei Gao

Shantou University

Date Written: August 6, 2008

Abstract

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.

Keywords: Shanghai stock exchange, Institutional investor, Investors' sentiment

JEL Classification: G14, C22

Suggested Citation

Kling, Gerhard and Gao, Lei, Chinese Institutional Investors' Sentiment (August 6, 2008). Journal of International Financial Markets, Institutions and Money, Vol. 18, No. 4, 2008, Available at SSRN: https://ssrn.com/abstract=1207682

Gerhard Kling (Contact Author)

University of Aberdeen - Business School ( email )

Business School
Aberdeen, Scotland AB15 5LQ
United Kingdom

Lei Gao

Shantou University ( email )

243 Daxue Road
Shantou, Guangdong, Guangdong 515063
China

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