Firm-specific investor sentiment, stock price synchronicity, and crash risk

ABSTRACT

This article investigates the impact of firm-specific investor sentiment on stock price synchronicity and further examines the relationship between stock price synchronicity and crash risk. By analysing the dataset of the Chinese stock market, we find that higher firm-specific investor sentiment induces lower stock price synchronicity, which is inconsistent with the argument supported by a majority of previous studies that low price synchronicity represents high price informativeness. We also find a negative relationship between price synchronicity and future crash risk, supporting the view that in an irrational market, less return comovement is not associated with more firm-specific information but noise.

KEYWORDS:

• Firm-specific investor sentiment
• stock price synchronicity
• stock price crash risk
• Chinese stock market

JEL CLASSIFICATION:

• G12
• G14

Acknowledgments

We thank the anonymous referee, Shu Yang, and Zhiming Zhang for their helpful comments.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Correction Statement

This article has been republished with minor changes. These changes do not impact the academic content of the article.

Additional information

Funding

This work was supported by the National Natural Science Foundation of China [No. 71772140].