Sentiment Beta, and Asset Prices: Evidence from China

Abstract

This paper examines the relationship between sentiment beta and stock returns in China’s stock market. Stocks with low (negative) investor sentiment beta significantly outperform those with high investor sentiment beta (positive), and an against minus catering sentiment (AMC) pricing factor is identified in Chinese stock market. The negative relationship between sentiment beta and stock returns is stronger when arbitrage is highly restricted but not statistically significant when arbitrage is less restricted. The negative relationship between sentiment beta and stock returns is stronger in stocks with highly subjective valuations.

Keywords: Sentiment Beta,Chinese Stock Market,Asset Pricing,Limit of Arbitrage

JEL Classification: G10,G12