Investor sentiment and stock returns: Wenchuan Earthquake

Liwei Shan, Stephen X. Gong*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

48 Citations (Scopus)


This paper exploits a natural experiment (the Wenchuan Earthquake in China) to study the effects of investor sentiment on stock returns. We find that during the 12. months following the earthquake, stock returns are significantly lower for firms headquartered nearer the epicenter than for firms further away. Further analyses indicate that this pattern of stock returns does not exist before or long after the earthquake, and cannot be explained by actual economic losses or a change in systematic risk. Overall, our evidence is consistent with the interaction of local bias and investor sentiment affecting stock returns.

Original languageEnglish
Pages (from-to)36-47
Number of pages12
JournalFinance Research Letters
Issue number1
Publication statusPublished - Mar 2012
Externally publishedYes


  • Behavioral finance
  • Disasters
  • Earthquake
  • Local bias
  • Sentiment
  • Stock Returns


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