ISSN: 2222-6990
Open access
With the growing interdependence of global capital markets, stock price co-movement—securities moving together—has been in the limelight. In China, synchronized industry movements are the result of speculative forces. Morck et al. (2005) ranked China second, among 40 countries, in stock price co-movement, attributing this to its unique market characteristics and strong investor influence. The dynamics reflect market efficiency, investment, and regulation. Sentiment lies at the center of China's A-share market, in which retail investors dominate. Synchronous price dynamics and speculation underlie volatility and inefficiency. Sentiment's contribution to stock price co-movement is explored to capture how psychological variables drive asset prices and market trends and inform risk based on sentiment and regulatory reaction. The present study analyzes China's A-share stock co-movement focusing on firm size and industry-based investor sentiment drive. Its novelty lies in the construction of an investor sentiment index with turnover rate, trading volume, and the Consumer Confidence Index (CCI) for a more sensitive capture of sentiment. The composite index provides a systematic means of identifying sentiment-driven market behavior. The research examines intensity of stock co-movement, sentiment changes, and the moderating roles of firm size and industry. It quantifies sentiment-based synchronization and examines how market structure determines this interaction, revealing behavioral and structural ingredients in the Chinese market. Findings are beneficial to a number of stakeholders. Investors are alerted to sentiment-driven price action and industry trends. Regulators can react to sentiment-driven volatility and investor sentiment. In behavior finance, the study applies sentiment models to China's market, demonstrating unique patterns. From a market efficiency perspective, it investigates sentiment-driven mispricing and industry behavior, filling research gaps in investor sentiment and stock co-movement.
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