The Effect of Investor Sentiment on Stock Pricing—An Empirical Study Based on A-H Shares of Cross-listing Companies

The impact of investor sentiment on the stock price reflects irrational factors effect on the capital markets to the extent of asset pricing.Security investment fund's loss ratio in capital market is used to construct investor sentiment index and its effect on stock pricing of A-H shares of cross-listing companies in China is studied.The study shows that after controlling Fama-French three factors and other macro-economic variables,the investor sentiment has a significant impact on A-share market and H-share market,which means that the stock prices will rise as soon as investor sentiment is high and vice versa.Besides,investor sentiment on the A-share market can significantly forecast the price reversion in the next 12 months while investor sentiment on the H-share market can significantly forecast the price reversion in the next 6 months,which indicates that the impact of investor sentiment on Chinese mainland stock market has a longer persistence than that of Hong Kong stock market and that there are significant irrational differences and efficiency differences between the two markets.This study contributes to the literature and provides theoretical and empirical evidences to trading and regulatory systems of A-share market.