Investor Sentiment and Stock Price Crash Risk: Indian Perspective

This study investigates the effect of investor sentiment on stock price crash risk for Indian firms from 2013 to 2022. We adhere to Baker and Wurgler (TJF 61:1645–1680, 2006) in constructing an aggregate investor sentiment index and examining its relationship with stock price crash risk. In our study, investor sentiment is measured using the Indian VIX in conjunction with firm-specific variables. We discover that a substantial positive association exists between investor sentiment and crash risk. We further examine the relationship between institutional investor holdings and stock price crash risk. Our results show that stocks with high institutional investor holdings exhibit higher crash-risk properties than those with low institutional investor holdings. Several robustness checks validate our findings.