Investor Sentiment Research Papers - Academia.edu (original) (raw)

In this paper, we employ an event study methodology to examine the possible impact of hurricanes on investor sentiment and stock market returns. Our results show that there is a significant decrease in stock returns on the day the... more

In this paper, we employ an event study methodology to examine the possible impact of hurricanes on investor sentiment and stock market returns. Our results show that there is a significant decrease in stock returns on the day the hurricanes make landfall and one day prior. Additionally, we observe that not all industries are significantly impacted and that firms with larger market capitalization are the least impacted by hurricanes. Further, we find a significant increase in investor fear on the day of hurricane landfall, and a significant ...

From outrage at corporations to excitement about innovations, marketplace sentiments are powerful forces in consumer culture that transform markets. This article develops a preliminary theory of marketplace sentiments. Defined as... more

From outrage at corporations to excitement about innovations, marketplace sentiments are powerful forces in consumer culture that transform markets. This article develops a preliminary theory of marketplace sentiments. Defined as collectively shared emotional dispositions, sentiments can be grouped into three function-based categories: contempt for villains, concern for victims, and celebration of heroes. Marketplace actors such as activists, brands, and consumers have a variety of motives and methods for producing and reproducing sentiments. Activists plant, amplify, and hyper-perform sentiments to recruit consumers and discipline institutions. Brands carefully select, calibrate, and broadcast sentiments to entertain consumers and promote products. Consumers learn, experience, and communicate sentiments to commune and individuate in society. The emergent theory of marketplace sentiments (1) advances a sociocultural perspective on consumer emotion, (2) elevates the theoretical significance of emotional observations in cultural studies, (3) offers a sentiment-based understanding of the power of ideology, (4) indicates how activist sentiments can paradoxically benefit from brand cooptation, and (5) calls for human input in big data sentiment analysis. More broadly, the article proposes that cultures are systems of discourses, sentiments, and practices wherein discourses legitimize sentiments and practices, sentiments energize discourses and practices, and practices materialize discourses and sentiments.

The article examines the process of forming a “stock market-induced corporate identity”. Nowadays, the concept of corporate identity is becoming multifaceted and interdisciplinary. The main thing in forming this image is the role and... more

The article examines the process of forming a “stock market-induced corporate identity”. Nowadays, the concept of corporate identity is becoming multifaceted and interdisciplinary. The main thing in forming this image is the role and active position of the company’s management, a built-up system of communications with society, and a proactive management policy. At the same time, there are external factors of corporate identity that do not depend on the proactive actions of management. According to the author, the financial market can be the field for establishing indirect communications between corporations and society where many investors are mediating. The stock market-induced corporate identity is forming in the process of this mediation. The driving belt between the financial market and corporate identity is investors’ behavior, moods, preferences, and characteristics of investment choices. Recently emotions and subjective moods are replacing fundamental analysis. As a result, investors selecting the groups of stocks with the most noticeable stories – “story stocks”. These stories provoke their rush of investment demand. Story stocks serve as an integrated concept for “meme stocks”, “hot stocks”, “NFT stocks”, “buzzing stocks”, “concept stocks”,“thematic investing”, “ESG stocks”. The author shows the dynamics and growth of investors’ attention to these groups of stocks in the article. Based on the analysis of quotes and fundamental indicators of story stocks, the author proves that the formation of corporate identity is divorced from internal factors that depend on the corporation itself, its management and shareholders, and increasingly depends on external factors determined by market sentiments of investors. The stock market-induced corporate identity is acquiring an independent role as one of the critical drivers of investors’ behavior. Analysis of story stocks reveals a particular pattern: the more popular and louder the stories of stocks the more their value breaks away from the fundamental indicators.

This article provides evidence and analysis to show that a MAC (multi-asset-class) diversified portfolio performed well in mean-variance space and under varying market conditions, including the very adverse 2008 market crash. The... more

This article provides evidence and analysis to show that a MAC (multi-asset-class) diversified portfolio performed well in mean-variance space and under varying market conditions, including the very adverse 2008 market crash. The portfolio also delivered during the two bull phases in the full period over which asset history existed. The construction of the covariance matrix for the efficient frontiers was independent of any return estimates or dynamic volatility-switching mechanisms. To abstract from hindsight bias, a 1/N equal-weighted portfolio was constructed and tested, consistent with some literature — it may still be the best alternative. In any case, the minimum-variance portfolios and the 1/N portfolio far exceeded the Sharpe ratio of the capitalization-weighted Russell 1000 equity index. The efficiency gains are potentially attributed to a lower overlap of the return-generating vectors, something that is not possible, to that extent, in an all-equity portfolio, irrespective of the extent of diversification in the non-negative space. Toward that, a scalar construct of overall dependencies called generalized variance is used as a measure of the overall spread within the covariance matrix. Two actual efficient frontiers are built with return data over the full length of the study and are tested for portfolio efficiencies. The dual return series has been implemented in the Returnfinder App, which produces Total Return charts that include dividends. Finally, with the objective of making such alternate asset and risk-allocation processes available to a wider set of investors, the portfolio components chosen to represent the low-correlation asset classes were among the most liquid index ETFs available on U.S. exchanges.

Closed-end funds (CEFs) present a unique opportunity to study finance in that the price of shares rarely matches the net value of the underlying holdings. This study investigates this phenomenon and how behavioral finance influences the... more

Closed-end funds (CEFs) present a unique opportunity to study finance in that the price of shares rarely matches the net value of the underlying holdings. This study investigates this phenomenon and how behavioral finance influences the discount. The study uses time-series regression analysis to examine the CNN Fear and Greed Index and its relationship with CEF discounts over time. Results of vector autoregression (VAR) and Granger-causality testing indicate that investor sentiment does not significantly influence the price of CEFs in relation to their net assets. Autoregressive conditional heteroskedasticity (ARCH) models show that the volatility of investor sentiment does not significantly influence the volatility of the CEF discount, but that there is an autoregressive component to movements in the discount. ARMA models show that the time series functions of investor sentiment and the CEF are cointegrated, but with no significant causation. In addition, the impact of herding on the CEF discount was evaluated using simple linear regression to show that the herding behavior of investors toward CEFs with higher distribution yields causes the fluctuation in the CEF discount. Investors may use this information to better understand the relationship between investor sentiment, herding, and the valuation inefficiencies of closed-end funds.

This study examined the relationship between investor sentiment and value anomalies in Brazil. In addition, it analyzed if pricing deviations caused by investors with optimistic views are different from those caused by pessimistic... more

This study examined the relationship between investor sentiment and value anomalies in Brazil. In addition, it
analyzed if pricing deviations caused by investors with optimistic views are different from those caused by
pessimistic investors. The sample included all non-financial firms listed on the B3 (Brasil, Bolsa, Balcão) stock
exchange from July 1999 to June 2014. We used the Principal Component Analysis multivariate technique to
capture the component common to four different proxies for investor sentiment. The study empirically tested the
index series and its variation on the return series of Long-Short portfolios of 12 anomaly-based strategies. The
study found that the measure of the sentiment index had a partial explanatory power for the anomalies only when
included in the CAPM. Yet, when using the index sentiment changes as an explanatory variable, the study found
a relationship with future returns, robust to all risk factors. Thus, it is possible to relate investor sentiment index to anomaly-based portfolio returns. When analyzing average returns after optimistic and pessimistic periods, the values we found in our empirical test were not statistically significant enough to infer the possible existence of short-sale constraints.

Based on an extensive sample of U.S. closed-end funds undergoing open-ending, we examine the behavior of discounts prior to the announcement till open-ending. Discounts are significantly reduced upon announcement of open-ending with price... more

Based on an extensive sample of U.S. closed-end funds undergoing open-ending, we examine the behavior of discounts prior to the announcement till open-ending. Discounts are significantly reduced upon announcement of open-ending with price increase. Announcement period return is directly related to the pre-announcement discount, and other hypothesized characteristics of the fund and investor behavior. The role of investor sentiments as

Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to public signals. We test this prediction in a M&A’s framework. We find that under high information uncertainty, when... more

Behavioural finance models suggest that under uncertainty, investors overweight their private information and overreact to public signals. We test this prediction in a M&A’s framework. We find that under high information uncertainty, when investors are more likely to possess firm-specific information, they generate highly positive and significant gains following the announcement of private stock, public cash and private cash acquisitions (positive news) while the market heavily punishes public stock (negative news) deals. On the other hand, under conditions of low information uncertainty when investors do not possess private information, the market reaction is complete (i.e. zero abnormal returns) irrespective of the type of acquisition.

The Initial Public Offerings (IPOs) pricing has become a leading example of market inefficiency during the last decades. Although there is an extensive amount of work that provides some evidence for the existence of short-term excess... more

The Initial Public Offerings (IPOs) pricing has become a leading example of market inefficiency during the last decades. Although there is an extensive amount of work that provides some evidence for the existence of short-term excess performance, there in no study to document price cap effect cases. The three (3) price cap changes introduced in a period of only six years (1993-1999) provide the grounds for investigating the implications of interventions on the pricing of new issues on the first day of trading. This study not only examines the price cap phenomenon of IPOs in a small but dynamic developing market as Greece, but also examines ten factors that probably affect the performance of new issues under price cap pressure in the short run. The empirical results indicate differences based on the price cap effect in the initials returns of the 349 IPOs launched on the Greek stock market during the 1990–2006 period. The level of underpricing varies from 24.87% in the case of ±8% pr...

The purpose of this study is to examine whether there is a significant difference in the level of Financial Risk Tolerance of employees in Financial Institutions with that of employees in Non-Financial Institutions in Sri Lanka. A sample... more

The purpose of this study is to examine whether there is a significant difference in the level of Financial Risk Tolerance of employees
in Financial Institutions with that of employees in Non-Financial Institutions in Sri Lanka. A sample of internet risk assessment survey
respondents was considered.A composite index using the values for answers was developed to measure Financial Risk Tolerance of respondents with the help of a Likert scale. The study employed descriptive statistics and one way Analysis of Variance test (ANOVA) to compare the levels of risk tolerance between the respondents of the two sectors, i.e. Financial Sector employees and Non-Financial Sector employees.
Key Words: Financial Risk Tolerance; Composite Index; Risk Assessment

This paper sheds light on US stock price deviations from fundamentals by analyzing the time-series dynamics of post-1870 S&P valuation ratios. It employs a non-linear, two-regime framework that allows for different behavior over phases of... more

This paper sheds light on US stock price deviations from fundamentals by analyzing the time-series dynamics of post-1870 S&P valuation ratios. It employs a non-linear, two-regime framework that allows for different behavior over phases of the stock market cycle. Persistence in the ratios implies prolonged price deviations from fundamentals stemming from short run continuation fueled by investor sentiment during bull markets. However, the pull from fundamentals ensures that valuation ratios
and prices move toward their equilibrium levels in bear markets. Impulse response functions highlight sluggish adjustment and indicate that the effects of positive shocks are more pronounced and long-lasting in bull markets. The main conclusion is that, while market sentiment plays an important transitory role, valuation ratios do mean revert and so prices reflect fundamentals in the long run.

Secara umum, covid-19 menimbulkan guncangan signifikan dalam perekonomian, termasuk di dalamnya adalah pasar modal. Pasar modal terutama pada saham perbankan menimbulkan berfluktuasi harga yang cukup tinggi sehingga mempengaruhi return... more

Secara umum, covid-19 menimbulkan guncangan signifikan dalam perekonomian, termasuk di dalamnya adalah pasar modal. Pasar modal terutama pada saham perbankan menimbulkan berfluktuasi harga yang cukup tinggi sehingga mempengaruhi return saham yang diperoleh oleh investor. Covid-19 ini mempengaruhi sentimen investor terhadap return saham. Selain itu masih ada perdebatan dalam EMH dimana investor dianggap rasional. Namun tidak sedikit penelitian yang membantah hal tersebut. Dalam hal ini penulis menemukan bahwa sentimen investor berpengaruh positif dan signifikan terhadap return saham perbankan yang diukur dari trading volume selama covid-19. Sementara jika dilihat dari Google Tren, sentimen investor tidak berpengaruh signifikan terhadap return saham. Hal ini dikarenakan pasar (investor) tidak terlalu sensitif terhadap berita atau informasi yang tersebar di internet.

Behavioural finance is a recent approach in financial markets that has appeared because of the complexities long faced by the traditional or neoclassical finance theory. This paper investigates the influence of investor sentiment and... more

Behavioural finance is a recent approach in financial markets that has appeared because of the complexities long faced by the traditional or neoclassical finance theory. This paper investigates the influence of investor sentiment and herding behaviour on stock market liquidity using an empirical study on the Egyptian Stock Market. We examine the direct impact of the Egyptian investor sentiment on the Egyptian Stock Market liquidity. As well as the indirect impact of the Egyptian investor sentiment on the Egyptian Stock Market liquidity through the Egyptian investor herding behaviour. Therefore, the major contribution is filling the gap of indirect sentiment-liquidity impact conflict. We use the monthly data of the EGX30 index from January 2004 up to December 2018 for building up investor sentiment index, investor herding behaviour, and stock market liquidity measures. Moreover, we are using two additional types of data (closed-end mutual fund discounts and the equity open-end mutual...

Investor sentiment is one of the non-fundamental factors that affect the financial markets, which itself is influenced by various factors, including oil price changes. This study aims to investigate the impact of oil price on investor... more

Investor sentiment is one of the non-fundamental factors that affect the financial markets, which itself is influenced by various factors, including oil price changes. This study aims to investigate the impact of oil price on investor sentiment in stock market industries in the Tehran Stock Exchange (TSE) using monthly data from April 2010 to June 2020. To investigate this issue, stock exchange industries were grouped into three categories: total industries, oil-related industries, and non-oil industries, and the effect of oil prices on investor sentiments in these three groups was examined using the pooled mean group (PMG) technique. The PMG approach considers both the short- and long-run relation between series and provides reliable results in the context of dynamic heterogeneous panel models. The implementation of PMG in all three models shows the impact of oil prices on investor sentiment over both the short and long run. Findings suggest also that oil price has positive and significant in all three models in the long run and the oil price coefficient is higher in oil-related industries than non-oil-related industries. These results are the opposite of the results obtained by similar studies, which can be due to the special features of countries, e.g. being oil exporters or oil importers

The study examined the effect of investor sentiment on future returns in the Nigerian stock market. The OLS regression and granger causality techniques were employed for data analyses. The results showed that (1) investor sentiment has a... more

The study examined the effect of investor sentiment on future returns in the Nigerian stock market. The OLS regression and granger causality techniques were employed for data analyses. The results showed that (1) investor sentiment has a significant positive effect on stock market returns even after control for fundamentals such as Industrial production index, consumer price index and Treasury bill rate; (2) there is a uni-directional causality that runs from change in investor sentiment (ΔCCI) to stock market returns (Rm). Derived finding showed that the inclusion of fundamentals increased the explanatory power of investor sentiment from 3.96% to 33.05%, though at both level, investor sentiment (ΔCCI) has low explanatory power on stock market returns. The study posits existence of a dynamic relationship between investor sentiment and the behaviour of stock future returns in Nigeria such that higher sentiment concurrently leads to higher stock prices.

This paper examines the determinants of CDS spreads and potential spillover effects for Eurozone countries during the recent financial crisis in the EU. We employ a Panel Vector Autoregressive (PVAR) model which combines the advantages of... more

This paper examines the determinants of CDS spreads and potential spillover effects for Eurozone countries during the recent financial crisis in the EU. We employ a Panel Vector Autoregressive (PVAR) model which combines the advantages of traditional VAR modelling with the advantages of a panel-data approach. In addition to variables that proxy for global and financial market spread determinants we also employ variables that proxy for behavioral determinants. We find that the determinants of CDS variance are neither uniform nor stable during different periods and different countries. For instance, as we move from 2008 to 2014 the impact of the slope of the term structure on CDS spread variance is increasing for Spain, Portugal, Italy, Greece, Ireland, and decreasing for Germany, France, Netherlands, Belgium and Austria. Other findings indicate that investor sentiment may be an important CDS spread determinant during the period between 2008 and 2010, along with other factors, while spillover effects may run from Spain and Italy to core countries while spillover effects from Portugal, Greece, and Ireland are of minor importance.

The attitude of individual investors is strongly correlated with their sentiment, so their behavior on the stock market can generate important changes in price fluctuations. The aim of our study was to provide evidence regarding the... more

The attitude of individual investors is strongly correlated with their sentiment, so their behavior on the stock market can generate important changes in price fluctuations. The aim of our study was to provide evidence regarding the relationship between the evolution of stock market and the individual investor sentiment, proxy by the consumer confidence index. This study is conducted on the Bucharest Stock Exchange (BSE) for a 10 year time period, starting from 2002 to 2011 and includes 120 observations. The results proved that there is a positive correlation between changes in consumer confidence and stock market returns, demonstrating that individual investor sentiment affects stock prices. However, the influence of individual investor sentiment seems to be quickly removed by the force of arbitrage. The price adjustments are realized in less than a month. Moreover, the influence of individual investor sentiment on the prices of the most 10 liquid companies from BSE is not statisti...

This paper analyses the effects of a particular type of mass media – economics blogs-on investors ’ behaviors. Using a large amount of linguistic data regarding about 900,000 posts during a five years time period (from 2008 to 2013), we... more

This paper analyses the effects of a particular type of mass media – economics blogs-on investors ’ behaviors. Using a large amount of linguistic data regarding about 900,000 posts during a five years time period (from 2008 to 2013), we propose the Moodec Index as new measure of investor sentiment and define a simple trading strategy to test its effectiveness. At the end of the period, our Moodec Index based strategy outperforms the “buy and hold ” one, with a higher performance of 13,75%.

This research analyzes whether there is a temporal association between investor sentiment and earnings management in Brazil. Several studies have investigated the determinants of earnings management, such as factors inside or external to... more

This research analyzes whether there is a temporal association between investor sentiment and earnings management in Brazil. Several studies have investigated the determinants of earnings management, such as factors inside or external to companies and regulatory requirements, but few have considered personal factors, such as investor sentiment in Brazil. With this investigation, it was apparent from the findings that accruals quality is affected by investor sentiment. For participants in the Brazilian capital market, this research reinforces the need for a more careful analysis of the results reported by companies, since managers, in response to investor sentiment, may manage earnings to inflate accounting profit through accruals and influence the market's ability to price shares correctly. It is evident that accounting choices are much more than just financial decisions and are subject to investor sentiments. The effect of investor sentiment should be considered among the determinants of future earnings management. A sample of non-financial Brazilian companies that traded shares on the Brasil, Bolsa, Balcão (B3) exchange from 2010 to 2016 was used. The investor sentiment index was calculated according to the methodology of Baker and Wurgler (2007). For earnings management, the models of Kang and Sivaramakrishnan (1995), Kothari, Leone, and Wasley (2005), and Dechow, Hutton, Kim, and Sloan (2012) were used. The estimates were carried out through regressions for pooled panel data, fixed, and dynamic effects using the system generalized method of moments (GMM) estimator. Discretionary accruals are positively associated with investor sentiment in the Brazilian capital market, in a similar way to markets with greater informational efficiency and notwithstanding the code-law system. Analyzing low and high sentiment periods separately, the findings suggest that managers increase accruals after high sentiment and reduce them after low sentiment.