We thank an anonymous referee for some very useful comments on an earlier draft of this paper.
ASSET PRICING WITH INVESTOR SENTIMENT: EVIDENCE FROM CHINESE STOCK MARKETS*
Article first published online: 26 FEB 2012
© 2012 The Authors. The Manchester School © 2012 Blackwell Publishing Ltd and The University of Manchester
The Manchester School
Volume 81, Issue 1, pages 1–32, January 2013
How to Cite
XU, Y. and GREEN, C. J. (2013), ASSET PRICING WITH INVESTOR SENTIMENT: EVIDENCE FROM CHINESE STOCK MARKETS. The Manchester School, 81: 1–32. doi: 10.1111/j.1467-9957.2011.02260.x
Manuscript received 14.10.09; final version received 30.7.10.
- Issue published online: 10 DEC 2012
- Article first published online: 26 FEB 2012
We study the impact of investor sentiment on stock returns in China, using as a benchmark the three-factor Fama–French model, and distinguishing between normal and positive sentiment. Sentiment helps explain the mis-pricing component of returns in the Fama–French model and the time variation in the factors themselves. Factor loading patterns noted by Fama-French are evident in China, but they can be equally well modelled by sentimental factors. Fama–French factors are less significant if factors are conditioned by sentiment, suggesting that in China sentiment affects both the way investors judge risks as well as portfolio returns directly.