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Is it all about noise? Investor sentiment and risk nexus: evidence from China

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  • Bouteska, Ahmed
  • Cardillo, Giovanni
  • Harasheh, Murad

Abstract

We investigate how online investor sentiment impacts stock risk, measured as Value-at-Risk (VaR). We extrapolate online investor sentiment from information on the stock forum on the 100 constituent stocks of the Shenzhen index using a self-written code to collect daily online postings from 2016 to 2022. Then, we rely on algorithms to classify them. Using quantile regressions and controlling for firm-specific factors and COVID-19, we document that stronger sentiment increases VaR while decreasing VaR on a lagged 7-day horizon. As we move to a longer horizon (20 days), the effect vanishes as more information becomes incorporated into the stock prices.

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  • Bouteska, Ahmed & Cardillo, Giovanni & Harasheh, Murad, 2023. "Is it all about noise? Investor sentiment and risk nexus: evidence from China," Finance Research Letters, Elsevier, vol. 57(C).
    • Handle: RePEc:eee:finlet:v:57:y:2023:i:c:s154461232300569x
    DOI: 10.1016/j.frl.2023.104197
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    More about this item

    Keywords

    Investor sentiment; Online posting messages; Text mining and classification; Social networks; Value at risk; SZSE 100 index;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G40 - Financial Economics - - Behavioral Finance - - - General
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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