Internet sentiment exacerbates intraday overtrading, evidence from A-Share market

TL;DR

This study demonstrates that internet sentiment significantly influences intraday overtrading in the Chinese A-share market, especially during bull markets and among different investor types and stock sizes.

Contribution

It introduces high-frequency social media sentiment indices to empirically analyze their impact on intraday overtrading in Chinese stocks, highlighting differential effects across investor types and market conditions.

Findings

Investor sentiment positively impacts intraday overtrading.

The effect is stronger among institutional investors.

Overtrading driven by sentiment is more prevalent in bull markets.

Abstract

Market fluctuations caused by overtrading are important components of systemic market risk. This study examines the effect of investor sentiment on intraday overtrading activities in the Chinese A-share market. Employing high-frequency sentiment indices inferred from social media posts on the Eastmoney forum Guba, the research focuses on constituents of the CSI 300 and CSI 500 indices over a period from 01/01/2018, to 12/30/2022. The empirical analysis indicates that investor sentiment exerts a significantly positive impact on intraday overtrading, with the influence being more pronounced among institutional investors relative to individual traders. Moreover, sentiment-driven overtrading is found to be more prevalent during bull markets as opposed to bear markets. Additionally, the effect of sentiment on overtrading is observed to be more pronounced among individual investors in large-cap stocks compared to small- and mid-cap stocks.