Investor Sentiment, Financial Report Quality and Stock Price Crash Risk: Role of Short-Sales Constraints

33 Pages Posted: 20 Feb 2016

See all articles by Yugang Yin

Yugang Yin

Southwestern University of Finance and Economics (SWUFE)

Rongfu Tian

Ningbo Dahongying University

Date Written: February 18, 2016

Abstract

We use firm-year observations of Chinese firms between 2003 and 2013 and empirically investigate the association between investor sentiment and stock crash risk with respect to short-sales constraint conditions. In addition, we also evaluate the incremental effect of financial reporting quality on this association and the existence of such an association under market conditions. We find that investor sentiment is positively associated with future stock price crash risk and poorer financial report quality and short-sale constraint will strengthen this association. In consideration of the firm-level fundamental information in stock prices and different market states, we find that lower fundamental information in stock price and bull market state will strengthen the positive association between investor sentiment and future stock price crash risk. Our findings are robust with several robustness checks.

Keywords: Investor Sentiment, Financial Report Quality, Short-Sales Constraints, Crash Risk

JEL Classification: D82, G12, G14

Suggested Citation

Yin, Yugang and Tian, Rongfu, Investor Sentiment, Financial Report Quality and Stock Price Crash Risk: Role of Short-Sales Constraints (February 18, 2016). Emerging Markets Finance and Trade, Nov. 2015, Available at SSRN: https://ssrn.com/abstract=2734174

Yugang Yin

Southwestern University of Finance and Economics (SWUFE) ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

Rongfu Tian (Contact Author)

Ningbo Dahongying University ( email )

899 Xueyuan Road, Yinzhou
Ningbo, Zhejiang 315175
China

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