Chinese Institutional Investors' Sentiment
Posted: 6 Aug 2008 Last revised: 6 Oct 2010
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
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