Comedy Movies and Stock Returns of Locally Headquartered Companies: Evidence from China

We utilize data on comedy moviegoers from 18 cities in China to investigate the impact of the positive mood triggered by these movies on the stock returns of locally headquartered listed companies. We find that although these movies have no relation to investment itself, the sentiment triggered by these movies could affect the risk decision making of investors. Moreover, the stock returns of locally headquartered companies become significantly negative after comedy movies are screened in their respective cities. These results support the mood maintenance hypothesis. This research also provides new evidence for the presence of home bias in capital markets.