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ASSET PRICING WITH INVESTOR SENTIMENT: EVIDENCE FROM CHINESE STOCK MARKETS *
Author(s) -
XU YIHAN,
GREEN CHRISTOPHER J.
Publication year - 2013
Publication title -
the manchester school
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.361
H-Index - 42
eISSN - 1467-9957
pISSN - 1463-6786
DOI - 10.1111/j.1467-9957.2011.02260.x
Subject(s) - capital asset pricing model , economics , stock (firearms) , financial economics , portfolio , behavioral economics , china , econometrics , finance , mechanical engineering , political science , law , engineering
We study the impact of investor sentiment on stock returns in China, using as a benchmark the three‐factor Fama–French model, and distinguishing between normal and positive sentiment. Sentiment helps explain the mis‐pricing component of returns in the Fama–French model and the time variation in the factors themselves. Factor loading patterns noted by Fama‐French are evident in China, but they can be equally well modelled by sentimental factors. Fama–French factors are less significant if factors are conditioned by sentiment, suggesting that in China sentiment affects both the way investors judge risks as well as portfolio returns directly.