Investor sentiment and stock returns: New evidence from Chinese carbon-neutral stock markets based on multi-source data

Abstract

Combining internet text and stock trading data, we construct two investor sentiment proxies for 78 carbon-neutral stocks in Chinese stock markets based on the FinBERT model and principal component analysis. We then examine the effects of the two investor sentiment indices on carbon-neutral stock returns using dynamic panel models. We also investigate the mediating role of liquidity on the effects of investor sentiment. Our results reveal that both trading and internet sentiment negatively affect stock returns through the mediating effect of liquidity. This finding holds after robustness checks for dividing the sample into pre and post-epidemics. However, due to the effects of COVID-19, carbon-neutral stock returns are found to be more susceptible to investor sentiment.