Investor sentiment, idiosyncratic risk, and mispricing of American Depository Receipt

Wu, Qinqin; Ying, Hao; Lu, Jing

doi:10.1016/j.intfin.2017.09.026

Cited by 19 publications

(25 citation statements)

References 51 publications

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“…Results from Panel A indicate clearly that the difference in the sentiment is a major factor in deciding the price disparity between the two types of shares. Results presented above are consistent with those of previous research such as Beckmann et al (2015) and Wu et. al (2017).…”

Section: Sentiment Differential and Price Disparity Between A-shares And H-sharessupporting

confidence: 93%

“…They argue that idiosyncratic risk is the most significant statistical and economic proxy for holding costs. Similar work are Beckmann et al (2015), Stambaugh et al (2015), Wu et al (2017), and Li and Ran (2020). All the above studies do not emphasize the mispricing of stocks from the perspective of idiosyncratic risk as well as investor sentiment for cross-listed companies.…”

Section: Idiosyncratic Risk and Mispricing Of Chinese Stocksmentioning

confidence: 82%

“…PCA approach is used to figure out data's underlying structure. Baker and Wurgler (2007), Stambaugh et al (2015), and Wu et al (2017) employ the same method to prove its validation and test their hypotheses. PCA procedure is as follows.…”

Section: Basic Approachmentioning

confidence: 99%

“…We have some reservations about this metric since a single index does not necessarily provide comprehensive economic viewpoints. Other studies using the composite sentiment index often apply one method, either PCA method (Baker et al, 2012; Fu et al, 2020) or PLS method (Wu et al, 2017). This article, as stated above, employs both PCA and PLS methods to construct the composite sentiment indices and test their roles in the price disparity between China A-shares and H-shares.…”

Section: Introductionmentioning

confidence: 99%

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Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies

2021

Sage Open

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We investigate whether idiosyncratic risk and investor sentiment play important roles in the price disparity between China A-shares and H-shares. To build the investor sentiment indices and decompose them into different fragments for both markets, we use both principal component analysis (PCA) and partial least squares (PLS) approaches. We further look at how idiosyncratic risk affects stock mispricing and how it deals with investor sentiment. We find that the price premium of A-shares over H-shares is strongly linked to the sentiment differential. We also discover that idiosyncratic risk has a major effect on the price premium of cross-listed companies. Moreover, a larger sentiment differential reinforces the impact of idiosyncratic risk on the price disparity. The above results remain robust after controlling for other economic factors.

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Section: Sentiment Differential and Price Disparity Between A-shares And H-sharessupporting

confidence: 93%

Section: Idiosyncratic Risk and Mispricing Of Chinese Stocksmentioning

confidence: 82%

Section: Basic Approachmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies

2021

Sage Open

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“…If it is clear what data is information, then trading on the basis of data that is not information is sentiment, or 'noise trading'. Wu et al (2017) go further, writing that "Investor sentiment is considered to be a belief about future cash flows and investment risks that are not justified by the facts at hand" (2017, p. 3). However, this is not the only way we can interpret this situation.…”

Section: Differential Information and Investor Rationalitymentioning

confidence: 99%

Differential Information, Arbitrage, and Subjective Value

Greene

2019

Topoi

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de Bruin et al. (in: Zalta (ed) The Stanford encyclopedia of philosophy, Stanford University, Stanford, 2018) write that it is a philosophically interesting question "whether there is such a thing as an "intrinsic" value of financial assets" noting that the calculation of any intrinsic price will depend, in part, on subjective elements. McCauley suggest that there are at least five different notions of the 'true value' of an asset in finance theory, and argues, consistent with de Bruin et al. that in many cases the calculation of such values "makes impossible information demands on our knowledge of future dividends and returns" (McCauley (Dynamics of markets-econophysics and finance, Cambridge University Press, Cambridge, 2004). This paper explores some of the subjective elements involved in calculating the intrinsic value of an asset, and their implications for the Law of One Price. The Law of One Price states that investors should not pay different prices for the same investment. Consequently, the existence, and persistence, of arbitrage opportunities is often attributed to investor irrationality. However, if subjectivity is involved in the calculation of intrinsic value then two investors can, rationally, disagree about the value of a security. This implies that arbitrage opportunities may not always be instances of irrationality, or genuine mispricing, but reflect different investor's perceptions of the security. In economics, value is taken to be subjective, and Postigo (Axiomathes 27:591-576, 2017) describes how goods have value because of the role they play in the satisfaction of our needs. By applying this to finance, this paper will argue that a security can play a number of roles in a portfolio, depending on an investors' strategy. Given these different roles, different investors will be working with different data in their assessment of intrinsic value. In order to establish that an arbitrage opportunity exists it is therefore necessary to understand what information is relevant to pricing the investment in different locations, or markets. It may, in fact, be the case that the same security can trade at different prices because different investors do not see it as the 'same thing' at all. This analysis can also be used to throw doubt on the emphasis that fundamental analysis receives in discussions of rationality.

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Do movements in macroeconomic determinants affect American depository receipt prices? Evidence from France

Ahad

Anwer

2020

Int. J Fin Econ

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This study investigates the impact of home country macroeconomics variables on American Depository Receipt (ADR) prices for the period 2000-2016 for France using combined cointegration approach. The results reveal strong association between ADR prices and macroeconomic variables. It is observed that, in the long run, money supply, oil price, real exchange rate and market index increase ADR prices while inflation and economic growth significantly decrease ADR prices. Similarly, the short run results reveal that exchange rate and share price index exert positive and significant effect on ADR prices whereas economic growth has negative and significant effect on ADR prices. Furthermore, bidirectional causality between ADR prices and explanatory variables is observed.This study highlights some significant policy implications for ADR investors.

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Investor sentiment, idiosyncratic risk, and mispricing of American Depository Receipt

Cited by 19 publications

References 51 publications

Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies

Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies

Differential Information, Arbitrage, and Subjective Value

Do movements in macroeconomic determinants affect American depository receipt prices? Evidence from France

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