Investor Sentiment and Chinese: A-Share Stock Market Returns

In this paper, we create an investor sentiment index for Chinese A-share stock market, and use it to predict future market returns. Consistent with studies on the U.S. stock market, we find investor sentiment has a positive relationship with contemporaneous aggregate market returns and can be considered as a contrary predictor of future aggregate market returns in Chinese stock market as it drives current price of stocks extremely far away from their fundamental value. Our study will complement previous work as an important supplementary for theories on Chinese and global investor sentiment and for investors to make their investing decisions.