Investor Sentiment and Stock Price Crash Risk: Evidence from China. Issue 4 (2nd October 2021)

• Record Type: Journal Article
• Authors: Fan, Yunqi; Zhou, Fangzhao; An, Yunbi; Yang, Jun
• Is Part Of: Global economic review. Volume 50:Issue 4(2021)
• Page Start: 310
• Page End: 339
• Publication Date: 2021-10-02
• Subjects: Investor sentiment -- crash risk -- margin trading -- speculative appeal; G12 -- G15 -- G18 -- G39; International economic relations -- Periodicals; Economic history -- 1990- -- Periodicals; East and West -- Periodicals; 337.05
• DOI: 10.1080/1226508X.2021.1947340
• Languages: English
• ISSNs: 1226-508X

Abstract

ABSTRACT: We study the cross-sectional effects of investor sentiment on stock price crash risk from the perspective of investor behavioural biases. We develop a firm-specific investor sentiment measure, and find that stocks with stronger investor sentiment are more prone to a future price crash. The positive relation is more pronounced for stocks eligible for margin trading, as higher investor sentiment induces greater margin buy/cover by optimistic investors. Short interest moderates the impact of optimistic sentiment on crash risk. The positive relation is also particularly prominent for stocks with a more speculative appeal, especially for those with lower institutional ownership.