Does investor sentiment affect stock price crash risk?

Cui, Huijie; Zhang, Yanan

doi:10.1080/13504851.2019.1643448

Cited by 29 publications

(20 citation statements)

References 18 publications

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“…When information is accumulated to its highest point, it will be released once, causing a stock market crash. Cui and Zhang (2019) also confirm that the impact of investor sentiment on the risk of stock price crashes is more obvious in firms with a greater leverage ratio, higher default risk, and wider analyst forecast dispersion. While many studies affirm the effect of sentiment on stock valuation, others examine whether ethical investing shapes sentiment-based mispricing.…”

Section: Previous Studiessupporting

confidence: 58%

Are Islamic Stocks Less Exposed to Sentiment-Based Mispricing Than Non-Islamic Ones? Evidence From the Indonesian Stock Exchange

Hashfi

Naufa

Munawaroh

2021

JIMF

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The aim of this research is to verify the role of Islamic value in stock mispricing in the Indonesian capital market. Empirically, high investor sentiment can lead to mispricing on equity appraisal. When investors feel excessively optimistic about their valuation, equity will be overpriced, or vice versa. The presence of Islamic values, such as the prohibition of interest, speculative and uncertain transactions, and excessive leverage, arguably reduce sentiment-based mispricing. Daily and cross-sectional market data were employed. In addition, principal component analysis was conducted to construct a firm-specific investor sentiment variable. With regard to the method, the Hausman-Taylor (H-T) approach was used to deal with heterogeneity, endogeneity, and the time-invariant variable in Fama-MacBeth regression. The results show that our baseline analysis confirms the mispricing of overall stocks. However, Islamic stocks are less exposed to sentiment-based mispricing than their non-Islamic counterparts. The results are consistent with our robustness test, in which we estimate the equation model across industry and portfolio. Finally, our findings imply various insights for both investors and policymakers.

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Section: Previous Studiessupporting

confidence: 58%

Are Islamic Stocks Less Exposed to Sentiment-Based Mispricing Than Non-Islamic Ones? Evidence From the Indonesian Stock Exchange

Hashfi

Naufa

Munawaroh

2021

JIMF

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“…For example, many studies have focused on firm-level internal factors such as corporate tax avoidance [1], opaque financial reports [2,3], accounting conservatism [4], corporate social responsibility [5], CEO overconfidence [6]), financial constraints [7], stock liquidity [8], corporate financing [9], corporate debt maturity [10], stock ownership [11], equity incentives [12], corporate governance [13], and other cases. However, several other studies on factors such as religion [14,15], social trust [16], media sentiment and mawkishness [17], individualism [18], Sustainability 2021, 13, 3688 2 of 16 political connections [19], trading behavior and sentiment of investors [20,21], and product market competition [22] have tried to investigate a couple of these corporate external factors. This study has a slightly different approach and aims to examine simultaneously the effects of some corporate characteristics as well as the most important macroeconomic external factors on the stock price crash.…”

Section: Introductionmentioning

confidence: 99%

Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?

et al. 2021

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The present study aims to investigate the effects of macroeconomic variables on stock price crash risk in the economically uncertain conditions of Iran’s market. This study also seeks to examine whether there is a significant relationship between some firm characteristics and falling stock prices. The sample of the study includes 152 Iranian companies listed on the Tehran Stock Exchange (TSE) between 2014 and 2019. Furthermore, the research model has been estimated using a fixed effect pattern, and the DUVOL (down-to-up volatility) measure is defined as a proxy for stock price crash risk. Consistent with our expectations, the results show that there is a positive association between the inflation and unemployment rates and stock price crash risk, whereas the GDP and exchange rates are correlated negatively with crash risk. In fact, with rising inflation and unemployment, on the one hand, the amount of savings and the purchasing power of the people have decreased, and on the other hand, it has reduced the sales of companies due to the increase in the pricing of manufactured products. In Iran’s economically uncertain situation due to sanctions, managers are trying to overstate financial performance and conceal bad news to have better access to financing; so, when the total amount of bad news accumulated over time reaches a tipping point, it leads to a stock crash. It also appears that when the exchange rate rises, Iranian investors prefer to buy companies’ shares to maintain the purchasing power of their money. Outcomes also confirm that larger firms and those with higher Return on Assets (ROA) are more sensitive to crash risk.

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“…Opler and Titman (1994) argue that leverage can significantly affect a firm's operating performance during a market downturn, especially during the economic recession due to the COVID-19 pandemic. The impact of investor sentiment on crash risk is more pronounced in firms with higher leverage ratios, greater default risk, and larger analyst forecast dispersion (Cui & Zhang, 2020). For the same risk class firms, a levered one should have a higher systematic risk than an unlevered one (Zhang & Zhou, 2020).…”

Section: Hypothesis Developmentmentioning

confidence: 99%

Stock Price Reaction when Covid -19 Exist: Moderating by Firm’s Operating Cash Flow

2021

JEM

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COVID-19 has been declared a global pandemic by the WHO, rendering the stock markets volatile. Investors predict that the pandemic can be a threat to a company's cash flow, whereas managers use the last year's financial condition to defend their stock price. We evaluate whether the company's operating cash flow moderates the company's financial condition and stock price reactions, in addition to making a comparison between the period before and during the COVID-19 pandemic using Difference in Difference. The regression analysis model used is a random effect model. The objects of this research are the hotel, tourism, restaurant, and retail trade sub-sector companies in the first quarter and second quarter of 2020, and 2019 and 2018 annually. We found that none of the firm's financial condition affected the stock's price reaction. We also found that operating cash flow strengthens the relationship between cash and ROA to the stock price. The results of this study further imply that the COVID-19 pandemic caused a significant stock price reaction when compared between the time before and during the COVID-19 disaster in Indonesia. The current study is hoped to contribute towards supporting the government in formulating policies to stimulate the currently-slumping economy. This study can also assist the investors in preparing their analysis to determine whether what action they should take in regards to their stocks, considering that our research implicitly reflects the development of conditions in several industrial sectors.

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Does investor sentiment affect stock price crash risk?

Cited by 29 publications

References 18 publications

Are Islamic Stocks Less Exposed to Sentiment-Based Mispricing Than Non-Islamic Ones? Evidence From the Indonesian Stock Exchange

Are Islamic Stocks Less Exposed to Sentiment-Based Mispricing Than Non-Islamic Ones? Evidence From the Indonesian Stock Exchange

Macroeconomic Factors and Stock Price Crash Risk: Do Managers Withhold Bad News in the Crisis-Ridden Iran Market?

Stock Price Reaction when Covid -19 Exist: Moderating by Firm’s Operating Cash Flow

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