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Market Sentiment, Valuation Heterogeneity, and Corporate Investment: Evidence from China’s A-Share Stock Market

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  • Bo Huang
  • Xi Fang

Abstract

We study the heterogeneous valuation of Chinese A-share stocks caused by high or low market sentiment and its impact on corporate investment during 2005Q3–2015Q2. We divide stocks into three types based on sentiment betas. We find that for “speculative” (and “bond-like”) stocks, overvaluation from high (low) sentiment increases corporate investment, but undervaluation from low (high) sentiment can be arbitraged away; “investment-Q” sensitivity is relatively weak. For “rationally valued” stocks, corporate investment is positively correlated with valuation and has no consistent relationship with market sentiment. However, changes in market sentiment can reduce the reliance of managers’ investment decisions on valuation.

Suggested Citation

  • Bo Huang & Xi Fang, 2021. "Market Sentiment, Valuation Heterogeneity, and Corporate Investment: Evidence from China’s A-Share Stock Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 57(8), pages 2230-2245, June.
    • Handle: RePEc:mes:emfitr:v:57:y:2021:i:8:p:2230-2245
    DOI: 10.1080/1540496X.2019.1672531
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    Cited by:

    1. Hao-Chang Yang & Ferry Syarifuddin & Chun-Ping Chang & Hai-Jie Wang, 2022. "The Impact of Exchange Rate Futures Fluctuations on Macroeconomy: Evidence from Ten Trading Market," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 58(8), pages 2300-2313, June.

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