Investor Sentiment and Stock Price Crash Risk: Evidence from China

Abstract

Abstract:

With the development of behavioral finance, financial risk management researchers begin to focus more on investor sentiment studies. In this paper, we construct China stock market investor sentiment index, with the adoption of principal component analysis sourcing from mainstream journals. We connect investor sentiment with the stock crash risks of CSI 100, 200, 500 and 1000 index constituent stocks, which are representatives of super-large, large, medium, and small cap stocks of China stock market, and find that only super-large cap stocks show significantly positive response to investor sentiment. While, for the other three types of stocks, the investor sentiment demonstrates no robust relations. Our study provides meaningful referential value for not only investors' risk management but also regulator's risk pre-warning reminder.

Key words: CSI index, investor sentiment, stock crash risk, market capitalization

Zhao Ruwei, Xiong Xiong, Shen Dehua. Investor Sentiment and Stock Price Crash Risk: Evidence from China[J]. , 2019, 31(3): 50-60.

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