This paper examines the idiosyncratic volatility puzzle and whether investor sentiment influences the relation\nbetween idiosyncratic volatility and stock returns in the Chinese stock market. The findings indicate the existence of a\nnegative idiosyncratic volatility effect. In addition, the results show that the relation between idiosyncratic volatility and\nreturns significantly depends on investor sentiment. Thus, investor sentiment plays a very important role in reconciling\nthe relation between idiosyncratic volatility and stock returns in the Chinese stock market. This implies that investor\nsentiment may be one of the major risk factors that should be considered in the Chinese stock market. In terms of\npredictive ability of investor sentiment, idiosyncratic volatility and market volatility, the findings indicate that idiosyncratic\nvolatility positively predicts future excess market returns in the Chinese stock market.
Loading....