Purpose Understanding the forces that drive share price movements is central to asset pricing and market efficiency research. Among these, investor sentiment has emerged as a behavioural trajectory that can reflect the firm-specific information in stock prices. Therefore, the present study attempts to investigate whether, when and how the firm-specific investor sentiment index (FSISI) impacts the stock price synchronicity (SPS) of Indian listed firms. Design/methodology/approach The present study used Bombay Stock Exchange (BSE) 500 companies from 2014 to 2024. The study employs firm fixed-effect panel regression to examine the nexus between FSISI and SPS. Moreover, to control for potential endogeneity concerns, two-stage least squares (2SLS) instrumental variable (IV) and system generalised method of moments (GMM) regression are utilised. Findings The findings indicate that FSISI, serving as a proxy for firm-specific information, is negatively associated with SPS, a relationship further supported by the robust assortment. Furthermore, the mechanism analysis reveals that FSISI leads to an increase in stock liquidity, thereby reducing SPS. Moreover, the heterogeneity analysis demonstrates that the association is accentuated in high institutional ownership (HIO) firms and during bullish (high) sentiments. Originality/value The study makes a novel contribution by examining the integral factors that reduce the SPS in the Indian context: the firm-specific investor sentiment index (FSISI), liquidity generated from FSISI, particularly in the case of HIO firms, and under bull or high sentiment conditions.
Sharma et al. (Tue,) studied this question.