Abstract
In this study, we find that the lagged sentiment gap between the A and B share markets in China inversely predicts the price premium of A-shares over B-shares. We also discover a positive concurrent relationship, implying that the sentiment gap drives the premium. More importantly, the premium itself not only conversely forecasts future market returns for boards comprising 64% of all stocks but also shows a positive concurrent relationship, fulfilling the role of a sentiment proxy. Finding the role enriches the importance of the premium since prior research focuses solely on its rationales.
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