Investor Sentiment and Market Efficiency: Evidence from China’s A-Share Market

This study examines how investor sentiment and information transparency jointly shape informational efficiency in China’s A-share market. Using a monthly panel of major CSI stock indices from 2008 to 2023, we measure market efficiency through a price delay framework that captures the speed of information incorporation into prices. The results show that heightened investor sentiment is associated with greater price delay, suggesting that sentiment-driven trading can impede informational efficiency in a retail-dominated market. Importantly, this effect is attenuated in environments with higher information transparency: the interaction between sentiment and transparency indicates that improved disclosure quality weakens the extent to which sentiment distorts price discovery. These findings are robust to instrumental-variable estimation and a range of additional checks. Overall, this study highlights information transparency as a key institutional condition that moderates sentiment-driven inefficiency and provides evidence on the role of disclosure reforms in supporting more efficient price formation in emerging equity markets.