The Impact of Investor Sentiment on the Chinese Stock Market: Evidence form the COVID-19 Period

Abstract

COVID-19 has a significant effect on the Chinese stock market. This paper uses event study and regression analysis to explore the effect of the pandemic on the Chinese stock market, as well as the impact of investor sentiment affected by the pandemic on financial markets. The results show that COVID-19 negatively affects the whole Chinese stock market, primarily when government policy is implemented. After the policy relaxation, the stock market starts a recovery period. Meanwhile, investor sentiment is more sensitive than before, especially after implementing strict epidemic prevention policies. During the epidemic, pharmaceutical and epidemic prevention and control material production industries are more affected by investor sentiment. However, investor sentiment does not sufficiently explain the abnormal returns of public utility-related industries, including electricity, heat, gas and water production and supply industries. Keywords: Investor sentiment; COVID-19; Chinese stock market; Market reaction; Industry effects