On the dynamic relationship between gold investor sentiment index and stock market: A sectoral analysis
International Journal of Managerial Finance
ISSN: 1743-9132
Article publication date: 8 January 2020
Issue publication date: 3 June 2020
Abstract
Purpose
Considering the unique data of the gold investor sentiment index in Thailand, the purpose of this paper is to investigate the bivariate dynamic relationship between the gold investor sentiment index and stock market return, as well as that between the gold investor sentiment index and stock market volatility, using the panel vector autoregression (PVAR) methodology. The author presents and discusses the findings both for the full sample and at the industry level. The results support prior literature that stocks in different industries do not react similarly to investor sentiment.
Design/methodology/approach
The PVAR methodology with the GMM estimation is found to be superior to other static panel methodologies due to considering both unobservable time-invariant and time-variant factors, as well as being suitable for relatively short time periods. The panel data approach improves the statistical power of the tests and ensures more reliable results.
Findings
In general, a negative and unidirectional association from gold investor sentiment to stock returns is observed. However, the gold sentiment-stock realized volatility relationship is negative and bidirectional, and there exists a greater impact of a stock’s realized volatility on gold investor sentiment. Importantly, evidence at the industry level is stronger than that at the aggregate level in both return and volatility cases, confirming the role of gold investor sentiment in the Thai stock market. The capital flow effect and the contagion effect explain the gold sentiment-stock return relationship and the gold sentiment-stock volatility relationship, respectively.
Research limitations/implications
The gold price sentiment index can be used as a factor for stock return predictability and stock realized volatility predictability in the Thai equity market.
Practical implications
Practitioners and traders can employ the gold price sentiment index to make a profit in the stock market in Thailand.
Originality/value
This is the first paper to use panel data to investigate the relationships between the gold investor sentiment and stock returns and between the gold investor sentiment and stocks’ realized volatility, respectively.
Keywords
Acknowledgements
The author thank Alfred Yawson (the Editor), the anonymous referee, Sakkakom Maneenop, Anutchanat Jaroenjitrkam, Sirimon Treepongkaruna, Miriam Sosa Castro (the discussant) and the participants at the 2018 Global Finance Conference, Paris, France, for helpful comments and suggestions. Special thanks goes to Phasin Wanidwaranan, Juthamas Wongkantarakorn and Phenpimol Boonbundanrit for their excellent research assistance. The author thank the Business Research Center (BRC), Thammasat Business School, Thammasat University for financial support. Any remaining errors are of the author’s own.
Citation
Padungsaksawasdi, C. (2020), "On the dynamic relationship between gold investor sentiment index and stock market: A sectoral analysis", International Journal of Managerial Finance, Vol. 16 No. 3, pp. 372-392. https://doi.org/10.1108/IJMF-11-2018-0334
Publisher
:Emerald Publishing Limited
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