Abstract
This study examines the responses of market sentiment and stock market returns in China during expansionary policy announcements released by the financial stability and development committee (FSDC). The results suggest that the expansionary financial stabilization policy has significant and positive impacts on stock markets in both a direct way and an indirect way through the market sentiment channel. The mediation analysis further confirms market sentiment as the significant mediator in transmitting the impact of the FSDC policy to stock markets. Moreover, the predictive power of market sentiment significantly increases during the FSDC policy announcements.
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