Dissertations, Theses, and Capstone Projects

Date of Degree


Document Type


Degree Name





Lin Peng


Xi Dong

Committee Members

Azi Ben-Rephael

Dexin Zhou

Subject Categories

Finance and Financial Management


Investor sentiment, trading, market efficiency, media, foreign investors, post earnings announcement drifts


This dissertation consists of three chapters that span investor sentiment, media and trading.

Chapter 1: I introduce a direct cross-border sentiment measure of foreign investors and find such foreign sentiment generates significant economic effects on market-level prices. It predicts significant return reversals in the destination markets both in-sample and out-of-sample. This foreign sentiment is unique and distinct from local sentiments in either origin or destination markets. Instrumental-variable and event-based analyses support a large causal effect of cross-border sentiment with, e.g., a multiplier of 4-5. Capital flows contain an important foreign sentiment component, and a residual component positively predicting returns. Our study provides the first empirical evidence showing that foreign (retail) investors contribute to noise in destination markets.

Chapter 2: I investigate the behavioral explanation for how foreign sentiment is generated. Our findings indicate that foreign sentiment is driven by an overreaction to negative destination-market news. In contrast, local sentiment is not driven by overreaction to the same news. The foreign sentiment effect is stronger for countries that investors perceive as more “foreign.” Using the Olympic Games held in the U.S. as an exogenous shock that reduces U.S. investors’ attention, I support the causal interpretation that news causes foreign sentiment. A complementary analysis of the U.S. provides consistent results, suggesting that non-U.S. investors display a similar foreign sentiment toward the U.S.. Taken together, I provide evidence for worldwide overreactions in response to destination-market bad news, consistent with a psychological bias named “outgroup negativity”.

Chapter 3: Using a setting that addresses many endogeneity concerns, I am able to cleanly examine the role of media coverage. Questions such as whether media plays a positive or negative role in asset pricing and market efficiency and whether media affects investor reactions through increasing investor attention or through more complex channels are answered. Evidence suggests that media contributes to faster information dissemination around earnings announcements only when media sentiment aligns with earnings news. Consistent media is associated with larger total trading volume and more aggressive total trading as well as retail trading. This study provides new evidence to shed light on recent debates on whether and how media plays a role in financial markets.