Does investor sentiment differently affect stocks in different sectors? Evidence from China
International Journal of Emerging Markets
ISSN: 1746-8809
Article publication date: 6 October 2021
Issue publication date: 14 November 2023
Abstract
Purpose
This paper aims to investigate the dynamic relationship between the investor sentiment and the return of various sectors in the Chinese stock market.
Design/methodology/approach
The wavelet coherence and wavelet phase angle approaches are used to study the lead–lag associations between sentiment index and stock returns in a time–frequency way. The multiscale linear and nonlinear Granger causality tests are performed to explore whether there is a causality between them.
Findings
The empirical results show that during normal period, investor sentiment index has a stronger relationship with stock returns of industrials, consumer discretionary, health care, utilities, real estate and financial sectors. In crisis period, investor sentiment has a significant positive relationship with all industry sectors. In the short term, there is bidirectional causality between investor sentiment and stock returns of all sectors. In the medium and long run, almost all sector stock returns Granger-cause the investors' sentiment index but investor sentiment does not Granger-cause all sectors, which is in contrast to the developed markets.
Practical implications
The interindustry impact of investment sentiment on the stock market can help construct arbitrage portfolio by investors who are interested in Chinese stock market.
Originality/value
This paper focuses on the industry sector differences of investor sentiment impact on the Chinese stock market. As far as the authors know, this is the first paper to explore the time–frequency relationship between sentiment index and industry stock returns in China using the time–frequency method based on wavelet coherence, which considers the heterogeneity of different types of investors' responses to various economic and financial events.
Keywords
Acknowledgements
The work was partially supported by the Humanities and Social Sciences Foundation of Ministry of Education of China (No. 18YJCZH134) and the Fundamental Research Funds for the Central Universities (No. FRF-BR-20-04B).
Citation
Niu, H., Lu, Y. and Wang, W. (2023), "Does investor sentiment differently affect stocks in different sectors? Evidence from China", International Journal of Emerging Markets, Vol. 18 No. 9, pp. 3224-3244. https://doi.org/10.1108/IJOEM-11-2020-1298
Publisher
:Emerald Publishing Limited
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