Market moods: an investor sentiment event study

Abstract

Purpose

The purpose of this paper is to provide insight to practitioners who wish to forecast market returns based on event occurrences.

Design/methodology/approach

Using 64 distinct events that reoccurred from 2007 to 2016 in six different nations of both developing and developed economies, this study used an event study methodology to test whether or not sentiment impacted market returns.

Findings

This study found that investor sentiment did impact market returns. Furthermore, events that were in developed economies or were negative impacted the market returns more than events that are in developing economies or positive. The study also provides important information on the speed of price adjustment to new information. The events selected include festive holidays, bombings, natural disasters and sports matches, among other events which had been found to alter mood. This paper also found no empirical difference between using the statistical mean and economic capital asset pricing models. However, the Wilcoxon rank test did provide more significant events than the more conservative Corrado rank test.

Originality/value

Most comprehensive investor sentiment impact on market returns paper using an event study methodology. The results have implications for those who wish to forecast market returns based on event occurrences.

Citation

French, J. (2018), "Market moods: an investor sentiment event study", Foresight, Vol. 20 No. 5, pp. 488-506. https://doi.org/10.1108/FS-02-2018-0018