Abstract
This article studies investor sentiment and its relation to the investment behavior of mutual fund investors in China. Using a panel threshold model, we found that investment behavior varies across investor sentiments, especially in a volatile as opposed to a stable period. The study demonstrates that mutual fund investors (1) prefer to purchase mutual fund units when mutual funds have gains during a volatile period; (2) prefer to redeem mutual funds units when the funds have gains during a stable period; (3) prefer to purchase mutual funds units when the funds have losses during a stable period; and (4) prefer to redeem mutual funds units when the funds have losses during a stable period.
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