Firm-speci fi c investor sentiment for the Chinese stock market *

Investor sentiment plays a significant role in asset prices, and sieves out safer and speculative stocks, and captures institutional and retail investors? demand shocks. Previous studies focus on the effects of investor sentiment in the developed stock markets using various sentiment metrics. We propose overnight and over-weekend returns as firm-specific investor sentiment (FSIS) to reflect retail investors? beliefs about the developing Chinese stock market, and show that FSIS has short-term persistence, a negative relation with intraday returns and price impact, a U-shaped relation with trading activity, an inverse U-shaped relation with long-run performance and a positive impact on cross-sectional returns. FSIS captures the characteristics of the Chinese stock market with short-selling constraints, and market-level information of FSIS explains risk premiums from sentiment-driven mispricing. Our results also reflect the stronger-self remediability after the 2015 crash of the Chinese stock market.