In this paper, we create an investor sentiment index for Chinese A-share stock market, and use it to predict future market returns. Consistent with studies on the U.S. stock market, we find investor sentiment has a positive relationship with contemporaneous aggregate market returns and can be considered as a contrary predictor of future aggregate market returns in Chinese stock market as it drives current price of stocks extremely far away from their fundamental value. Our study will complement

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... previous work as an important supplementary for theories on Chinese and global investor sentiment and for investors to make their investing decisions. JEL classification numbers: G24