A nonlinear Granger causality test between stock returns and investor sentiment for Chinese stock market: a wavelet-based approach

Chu, Xiaojun; Wu, Chongfeng; Qiu, Jianying

doi:10.1080/00036846.2015.1109048

Cited by 48 publications

(27 citation statements)

References 31 publications

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“…Kling and Gao [67] hold that negative market returns are more likely to cause investor sentiment to fall in the relative short-term. Chu et al [68] indicate that, though there is no linear causality from market returns to investor sentiment, a strong bidirectional nonlinear causality between them exists. Zhang et al [69] argue that, in non-crisis periods, market returns do not drive investor sentiment changes.…”

Section: Literature Reviewmentioning

confidence: 99%

Can Stock Investor Sentiment Be Contagious in China?

Cai

Ran

2020

Sustainability

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This paper explores the impact of investor sentiment on financial markets in China by taking the quantile causality test. We find that government bond markets, gold markets, and foreign exchange markets are affected by stock investor sentiment, except for in the corporate bond market. In extreme situations, such as excessively optimistic or pessimistic sentiment, these markets will become more vulnerable to suffering from drastic fluctuations. On the contrary, the market return in government bonds, corporate bonds, and foreign exchange also has an influence on stock investor sentiment. Moreover, these links show various asymmetry due to the heterogeneity of different financial markets. Our results are consistent with the noise trader model, which shows the impact of investor sentiment on market returns. Hence, the authorities can sustain the stabilization of financial markets by reducing information asymmetry, guiding the rational sentiment of investors, and increasing effective regulations.Especially in certain extreme pessimistic situations, sentiment in the stock market can lead to drastic fluctuations in other financial markets [15,16], and the authorities cannot maintain market stability and continuity of development. In turn, the performance of these markets is also a remarkable barometer that leads stock investor sentiment to change [17]. Through information in different market environments, external shocks, not only make asset price fluctuate, but also result in stock investors overreacting, and this affects their investment expectations [18]. This bidirectional transmission is regarded as an important factor for the linkage among major financial markets [19]. Hence, investor sentiment plays an important role in the formation of financial market effectiveness. If investor sentiment cannot be reasonably guided, it will be difficult to suppress irrational trading and speculative bubbles and improve market efficiency.Compared with stock markets in developed countries, individual investors account for a large proportion of Chinese stock investors, which makes the whole market more emotional [20]. With a lack of social responsibility and an awareness of sustaining market efficiency, the individual Chinese investor has an underdeveloped investment education and, thus, they often show irrational investment behavior [21]. Hence, market fluctuation frequently happens, and it is difficult for investor sentiment to be properly guided. Not only do investors make irrational trades in the stock market, but they are also more likely to carry their emotions to other markets [22]. If investor sentiment in the stock market spreads to other markets and causes unexpected fluctuations in China, the pricing and operating efficiency of many financial markets will be damaged. As well as the stock market, the gold, bond, and foreign exchange markets are all financial markets with a large scale in China. If such emotional contagion exists in China, investors who excessively ignore the fundamentals will find it difficult to form th...

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Section: Literature Reviewmentioning

confidence: 99%

Can Stock Investor Sentiment Be Contagious in China?

Cai

Ran

2020

Sustainability

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“…From the condition, that β_i = 0 (I = 1.2,…, = k) is a statistically acceptable restriction it follows that t x is not the cause t y . This means that the Granger causality test determines the influence of one variable past observations on the current value of another variable (Chu, Wu, & Qiu, 2016). The results of the causality test are sensitive to external influences and times, so based on the causal relationship and causality analysis it is necessary to select the appropriate number of lags.…”

Section: The Methodology Of the Assessment Of Productivity And Its Dementioning

confidence: 99%

Features of the assessment of factors influencing productivity

Danilevičienė

2019

Proceedings of 6th International Scientific Conference Contemporary Issues in Business, Management and Economics Engineering ‘2

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Purpose – productivity is an economic category that is dependent on many internal and external factors and the assess-ment and management of these factors positively affects the country’s economic situation. The aim of this article is to identify the main factors that influence productivity and their relationship. Research methodology – the methodology of the article give information about the Granger causality test that was applied in order to assess the factors influence on productivity. Findings – the results of deeper researches of productivity and the assessment of the selected factors have shown that the strongest impact on productivity has the investments and wages. Research limitations – at this article the following research limitations are applied: amount (due to the analysis of produc-tivity and its determinants it is possible to mention that not all factors that have an influence on productivity are included in the concept of research), time (the data of the 1995–2017 y.y. are analyzed) and the method (the most appropriate al-ternative for the analysis is the use of the Granger causality test). Practical implications – the improvement of the country’s economic situation is possible due to the targeted management of the factors, that have the greatest impact on productivity. Originality/Value – new variables are included in the analysis of productivity and factors that have an influence on it and the evaluation of these factors is carried out in the case of Baltic States.

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“…They claim to have found robust results in favor of futures influencing spot markets. Chu et al (2016) researched equity returns and investor sentiment in China. Surprisingly enough, they found that both types of time series influence each other in a nonlinear way.…”

Section: Nonlinear Granger Causalitymentioning

confidence: 99%