Investor sentiment and the Chinese index futures market: Evidence from the internet search

AuthorXiaolin Wang,Feng Zhao,Yi Kou,Qiang Ye
Published date01 April 2018
DOIhttp://doi.org/10.1002/fut.21893
Date01 April 2018
Received: 12 October 2017
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Accepted: 13 October 2017
DOI: 10.1002/fut.21893
RESEARCH ARTICLE
Investor sentiment and the Chinese index futures market:
Evidence from the internet search
Xiaolin Wang
1
|
Qiang Ye
1
|
Feng Zhao
2
|
Yi Kou
1
1
School of Management, Harbin Institute of
Technology, Harbin, China
2
Naveen Jindal School of Management,
University of Texas at Dallas, Richardson,
Texas
Correspondence
Qiang Ye, Professor, School of
Management, Harbin Institute of
Technology, 92 Xidazhi street, Nangang
District, Harbin, China, 150001.
Email: yeqiang@hit.edu.cn
Funding information
National Natural Science Foundation of
China, Grant numbers: 71771079,
71532004, 71225003
We use the search volume index in Baidu to reveal investor sentiment in the Chinese
stock index futures market. We find that the abnormal search volume index predicts
return reversal in the short term where the effect is mainly caused by the searches of
investors who use personal computers rather than mobile devices. We also find that
restriction on futures trading changes the relation between the abnormal search
volume index and returns significantly. Overall, we provide a new set of results on the
effects of investor sentiment on Chinese index futures markets.
KEYWORDS
CSI 300 index futures market, investor sentiment, PC-based search volume, search volume index
1
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INTRODUCTION
Studies argue that investor s entiment predicts stock retu rns in the cross-section. Thi s prediction indicates that in vestor
sentiment induces movements in stock prices and affects their exp ected returns (Baker & Wurgler , 2006, 2007; Brown &
Cliff, 2005; Drake & Roulsto ne, 2012; Kumar & Lee, 2006) . Da, Engelberg, and Gao (2014 ) show that if uninformed n oise
traders base their trading de cisions on sentiment, then extreme sentiment chang es will temporarily lead to more noise trading
and greater mispricing.
More and more research investigates how Internet searches affect financial markets. Da, Engelberg, and Gao (2011) use
Google's search volume index (SVI) on ticker symbols as a proxy for investors' firm-specific attention. Da, Engelberg, and Gao
(2014) use the daily volume of internet searches from millions of households to measure market-level sentiment. Drake and
Roulstone (2012) use abnormal Google search volumes to explain investors' demand for specific information. These results
show that Internet searches can be a useful indicator in addition to news, advertising expenses, extreme returns, trading volume,
open interest, and media attention (Aboody, Lehavy, & Trueman, 2010; Barber & Odean, 2011; Chan, 2003; Chemmanur &
Yan, 2010; Kurov, 2010; Li & Yu, 2012; Yu & Yuan, 2011).
Our study complements and extends these studies by examining the Chinese futures market. With the global trend in
financialization, the participation of retail investors in Chinese futures markets has surged to unprecedented levels. To
our knowledge, no work has yet examined the effects of search volume on index futures markets, and relatively few
studies use the SVI to reveal investor sentiment in the Chinese futures markets. This gap might exist because the SVI
mainly reflects the attributes of individual investors, not the financial institutions and other sophisticated investors. By
using trader position as a proxy for sentiment, Wang (2001) shows that small trader sentiment hardly forecasts future
market movements. Goddard and Kita (2015) argue that significant differences exist between the futures and stock
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© 2017 Wiley Periodicals, Inc. wileyonlinelibrary.com/journal/fut J Futures Markets. 2018;38:468477.

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