Sentiment Stocks

Posted: 6 Mar 2019 Last revised: 13 Oct 2020

See all articles by Hang Dong

Hang Dong

IE University

Javier Gil-Bazo

Universitat Pompeu Fabra; Barcelona Graduate School of Economics (Barcelona GSE)

Date Written: July 3, 2020


To study how investor sentiment at the firm level affects stock returns, we match more than 58 million social media messages in China with listed firms and construct a measure of individual stock sentiment based on the tone of those messages. We document that positive investor sentiment predicts higher stock risk-adjusted returns in the very short term followed by price reversals. This association between stock sentiment and stock returns is not explained by observable stock characteristics, unobservable time-invariant characteristics, market-wide sentiment, overreaction to news, or changing investor attention. Consistent with theories of investor sentiment, we find that the link between sentiment and stock returns is mainly driven by positive sentiment and non-professional investors. Finally, exploiting a unique feature of the Chinese stock market, we are able to isolate the causal effect of sentiment on stock returns from confounding factors.

Keywords: Investor sentiment; Stock Returns; Social media; Investor attention; News sentiment

JEL Classification: G11; G12; G41

Suggested Citation

Dong, Hang and Gil-Bazo, Javier, Sentiment Stocks (July 3, 2020). International Review of Financial Analysis, Forthcoming, Available at SSRN: or

Hang Dong (Contact Author)

IE University ( email )

Calle Cardenal Zuñiga, 12.
Segovia, 40003

Javier Gil-Bazo

Universitat Pompeu Fabra ( email )

Ramon Trias Fargas, 25-27
Barcelona, 08005

Barcelona Graduate School of Economics (Barcelona GSE) ( email )

Ramon Trias Fargas, 25-27
Barcelona, Barcelona 08005

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