Relationship between investor sentiment and earnings news in high‐ and low‐sentiment periods

Abstract

Abstract Using the Chinese equity market as the testing venue, this study explores how investor sentiment affects the immediate reaction of stock prices to earnings news in high‐ and low‐sentiment periods. Our key finding is that the sentiment‐driven pricing of earnings will differ between the two periods. Specifically, during high‐sentiment (low‐sentiment) periods, the stock price sensitivity to good (bad) earnings news increases (decreases) with investor sentiment, whereas the stock price sensitivity to bad (good) earnings news is unrelated to investor sentiment. Additionally, we find that the effect of sentiment is more pronounced for young, high volatility, growth and distressed stocks. However, contrary to the U.S. evidence, our results show that small stocks are not always more exposed to sentiment. Further analysis of the role of short‐sales constraints in the sensitivity of stock prices to bad earnings news implies that short sales can enhance informational efficiency.

Cite this work

No public copy is stored for this record, so only the metadata is cited.

Stored only when both papers are in the corpus — 38 citations exist upstream.

Papers that cite the same references — the relational fallback while embeddings are still backfilling.