The Effect of Investor Sentiment throughout the Distribution of Returns in the Chinese Stock Market

Abstract

This paper adopts the data of xueqiu.com in the first half of 2015 from the Datago database and selects 100 A-shares stocks in CSI100. The number of followers is considered when building the bullishness index. In addition, quantile regression is used to study the contem-poraneous and predictive effects of sentiment on stock returns. The result suggests that sen-timent has negative contemporaneous effects on stock returns, while for the predictive mod-el, the effect is positive. Furthermore, the effects of sentiment are stronger in extreme cir-cumstances and more substantial at lower quantile than at higher quantile. However, the weighted bullishness index does not explain well as the original one. Overall, this paper ver-ifies the difference of effects between extreme and normal conditions, then attempts to use a new method to construct a bullishness index and offer more evidence about the relationship between social network sentiment and stock returns in the Chinese stock market.