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Article
Publication date: 9 February 2024

Alexandre Esteves and Pedro Piccoli

The purpose of this study is to investigate the influence of firm-specific investor sentiment on Brazilian companies’ accrual-based earnings management between 2010 and 2018. The…

Abstract

Purpose

The purpose of this study is to investigate the influence of firm-specific investor sentiment on Brazilian companies’ accrual-based earnings management between 2010 and 2018. The paper aims to bring deeper insight into the relationship between the investor expectations and managers’ decision-making in an emerging market.

Design/methodology/approach

The authors use the quantitative approach and apply a multiple linear regression model to test the relationship among the abnormal accruals, the firm-specific investor sentiment index and the control variables. The final sample includes data from 175 companies, between 2010 and 2018.

Findings

These results reveal a negative association between firm-specific investor sentiment and accrual-based earnings management, which could mean that the risk propensity of managers to manipulate earnings increases when they face known losses in the capital market.

Research limitations/implications

The research findings provide a valuable understanding of how emerging capital market expectations can influence managerial decisions, such as accrual-based earnings management. The geographical area of study was limited to only Brazil.

Originality/value

Previous studies on developed markets show that market-wide investor sentiment positively influences accrual-based earnings management. However, the present study shows that the firm-specific investor sentiment index has a significant and negative relationship with Brazilian companies’ earnings manipulation, whereas market sentiment indicates contradictory relationship in previous studies in the country.

Propósito

El propósito de este estudio es investigar la influencia del sentimiento de los inversionistas a nivel de empresa en la manipulación contable de las empresas brasileñas entre 2010 y 2018. El documento pretende aportar una visión más profunda sobre la relación entre las expectativas de los inversores y la toma de decisiones de los gestores en un mercado emergente.

Diseño/metodologia/enfoque

usamos el enfoque cuantitativo y aplicamos un modelo de regresión lineal múltiple para probar la relación entre las acumulaciones anormales, el índice de sentimiento de los inversores a nivel de empresa y las variables de control. La muestra final incluye datos de 175 empresas, entre 2010 y 2018.

Hallazgos

Los resultados revelan una asociación negativa entre el sentimiento de los inversores a nivel de empresa y la manipulación contable basada em acumulaciones, lo que podría significar que la propensión al riesgo de los administradores a manipular las ganancias aumenta cuando enfrentan pérdidas conocidas en el mercado de capitales.

Limitaciones/implicaciones de la investigación

los resultados de la investigación proporcionan una valiosa comprensión de cómo las expectativas de los mercados de capitales emergentes pueden influir en las decisiones de gestión, como la manipulación contable basada en acumulaciones. El área geográfica de estudio se limitó únicamente a Brasil y, en consecuencia, los hallazgos y conclusiones del estudio tuvieron sus límites.

Originalidad/valor

estudios anteriores sobre mercados desarrollados muestran que el sentimiento de los inversores a nivel de mercado influye positivamente en la manipulación contable. Sin embargo, el presente estudio muestra que el índice de sentimiento de los inversores a nivel de empresa tiene una relación significativa y negativa con la manipulación de las ganancias de las empresas brasileñas, mientras que el sentimiento del mercado indica una relación contradictoria en estudios anteriores en el país.

Details

Academia Revista Latinoamericana de Administración, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1012-8255

Keywords

Article
Publication date: 15 January 2024

Qiang Bu and Jeffrey Forrest

The authors compare sentiment level with sentiment shock from different angles to determine which measure better captures the relationship between sentiment and stock returns.

Abstract

Purpose

The authors compare sentiment level with sentiment shock from different angles to determine which measure better captures the relationship between sentiment and stock returns.

Design/methodology/approach

This paper examines the relationship between investor sentiment and contemporaneous stock returns. It also proposes a model of systems science to explain the empirical findings.

Findings

The authors find that sentiment shock has a higher explanatory power on stock returns than sentiment itself, and sentiment shock beta exhibits a much higher statistical significance than sentiment beta. Compared with sentiment level, sentiment shock has a more robust linkage to the market factors and the sentiment shock is more responsive to stock returns.

Originality/value

This is the first study to compare sentiment level and sentiment shock. It concludes that sentiment shock is a better indicator of the relationship between investor sentiment and contemporary stock returns.

Details

Managerial Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 18 January 2024

Kléber Formiga Miranda and Márcio André Veras Machado

This study examines the investment horizon influence, mediated by market optimism, on earnings management based on accruals and real activities. Based on short-termism, the…

Abstract

Purpose

This study examines the investment horizon influence, mediated by market optimism, on earnings management based on accruals and real activities. Based on short-termism, the authors argue that earnings management increases in optimistic periods to boost corporate profits.

Design/methodology/approach

The authors analyzed non-financial Brazilian publicly traded firms from 2010 to 2020 by estimating industry-fixed effects of groups of short- and long-horizon firms to compare their behavior on earnings management practices during bullish moments. For robustness, the authors used alternate measures and trade-off analyses between earning management practices.

Findings

The findings indicate that, during bullish moments, companies prioritize managing their earnings through real activities management (RAM) rather than accruals earnings management (AEM), depending on their time horizon. The results demonstrate the trade-off between earnings management practices.

Research limitations/implications

This study presents limitations when using proxies for earnings management and investor sentiment.

Practical implications

Investors and regulators should closely monitor companies' operations, especially during bullish market conditions to prevent fraud.

Originality/value

The study addresses investor sentiment mediation in the earnings management discussion, introducing the short-termism approach.

Details

Journal of Applied Accounting Research, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0967-5426

Keywords

Article
Publication date: 7 November 2023

Te-Kuan Lee and Askar Koshoev

The primary objective of this research is to provide evidence that there are two distinct layers of investor sentiments that can affect asset valuation models. The first is…

Abstract

Purpose

The primary objective of this research is to provide evidence that there are two distinct layers of investor sentiments that can affect asset valuation models. The first is general market-wide sentiments, while the second is biased approaches toward specific assets.

Design/methodology/approach

To achieve the goal, the authors conducted a multi-step analysis of stock returns and constructed complex sentiment indices that reflect the optimism or pessimism of stock market participants. The authors used panel regression with fixed effects and a sample of the US stock market to improve the explanatory power of the three-factor models.

Findings

The analysis showed that both market-level and stock-level sentiments have significant contributions, although they are not equal. The impact of stock-level sentiments is more profound than market-level sentiments, suggesting that neglecting the stock-level sentiment proxies in asset valuation models may lead to severe deficiencies.

Originality/value

In contrast to previous studies, the authors propose that investor sentiments should be measured using a multi-level factor approach rather than a single-factor approach. The authors identified two distinct levels of investor sentiment: general market-wide sentiments and individual stock-specific sentiments.

Details

Review of Behavioral Finance, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1940-5979

Keywords

Book part
Publication date: 25 September 2020

N. Serap Vurur

Purpose: Investor sentiment in financial markets has a close relationship with the general mood prevailing in the environment such as economic, social and political life. Future…

Abstract

Purpose: Investor sentiment in financial markets has a close relationship with the general mood prevailing in the environment such as economic, social and political life. Future economic expectations are important for both investors and policymakers. Investor sentiment and macroeconomic variables are likely to affect each other. Emerging countries are particularly sensitive to interest and foreign exchange risk. Turkey is an important emerging country. The effects of interest rate and exchange fluctuations are high in this country. The aim of this study is to reveal the relationship between investor sentiment and interest and foreign exchange rates in Turkey.

Methodology: This study investigates the relationship between economic confidence index, exchange rates and interest rates in Turkey during the period between January 2012 and November 2019 using monthly data sets. The economic confidence index is used to represent the investor sentiment in the study. Interest rate variables are the deposit interest rates and the commercial credit interest rates. The representative of the US dollar currency variables is included in the analysis. This chapter used the time series vector error correction model approach of stationarity test, cointegration test and Granger causality test.

Findings: According to the causality test, there is a two-way relationship between economic confidence index and exchange rate, and there is uni-directional causality from commercial credit interest rate to economic confidence index. The results show that foreign exchange and commercial credit interest rate variables are carefully monitored by market players and are effective and influential in the formation of future expectations.

Originality/value: The study shows the direction of the relationship between economic confidence foreign exchange and commercial credit interest rate. Policymakers can shape expectations by taking into account the direction of the relationship.

Details

Uncertainty and Challenges in Contemporary Economic Behaviour
Type: Book
ISBN: 978-1-80043-095-2

Keywords

Article
Publication date: 3 April 2023

Muhammad Fayyaz Sheikh, Aamir Inam Bhutta and Tahira Parveen

Investor sentiment (optimism or pessimism) may influence investors to follow others (herding) while taking their investment decisions. Herding may result in bubbles and crashes in…

Abstract

Purpose

Investor sentiment (optimism or pessimism) may influence investors to follow others (herding) while taking their investment decisions. Herding may result in bubbles and crashes in the financial markets. The purpose of the study is to examine the presence of herding and the effects of investor sentiment on herding in China and Pakistan.

Design/methodology/approach

The investor sentiment is captured by five variables (trading volume, advance/decline ratio, weighted price-to-earnings ratio, relative strength index and interest rates) and a sentiment index developed through principal component analysis (PCA). The study uses daily prices of 2,184 firms from China and 568 firms from Pakistan for the period 2005 to 2018.

Findings

The study finds that herding prevails in China while reverse herding prevails in Pakistan. Interestingly, as investors become optimistic, herding in China and reverse herding in Pakistan decrease. This indicates that herding and reverse herding are greater during pessimistic periods. Further, the increase in herding in one market reduces herding in the other market. Moreover, optimistic sentiment in the Chinese market increases herding in the Pakistani market but the reverse is not true.

Practical implications

Considering the greater global financial liberalization, and better opportunities for emotion sharing, this study has important implications for regulators and investors. Market participants need to understand the prevalent irrational behavior before trading in the markets.

Originality/value

Since individual proxies may depict different picture of the relationship between sentiment and herding therefore the study also develops a sentiment index through PCA and incorporates this index in the analysis. Further, this study examines cross-country effects of herding and investor sentiment.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Article
Publication date: 8 August 2023

Syed Faisal Shah

This paper has analysed the impact of cultural dimensions, investor sentiment and uncertainty on bank stock returns. Also, the study examined the influences of the interaction…

Abstract

Purpose

This paper has analysed the impact of cultural dimensions, investor sentiment and uncertainty on bank stock returns. Also, the study examined the influences of the interaction between cultural dimensions and individual (private) sentiment (investor sentiment).

Design/methodology/approach

To meet the study's objectives, a two-step generalised method of moments estimator was applied to the study sample, which included 105 banks in the nine Middle East and North African region countries between 2010 and 2020.

Findings

The cultural dimensions of individualism and masculinity were found to have a positive and significant effect on banks' buy and hold stock return (BUH). At the same time, power distance and uncertainty avoidance were discovered to have negative effects. Besides, the findings revealed that the interactions of power distance, individual sentiment and uncertainty avoidance had positive and significant relationships with banks' BUH. However, individualism, individual sentiment and masculinity had inverse relationships with banks' BUH. Furthermore, the findings revealed that investor sentiment positively influenced banks' BUH. Finally, uncertainty influenced banks' BUH stock returns positively.

Research limitations/implications

Important implications for participants in the financial sector and governments may be learnt from this study's conclusions. Due to cultural biases, this study's findings suggested that investors overreact in the stock market.

Originality/value

Additionally, this research comprises one of the few studies that have overviewed the link between classical and behavioural finance in MENA countries with distinctive cultural characteristics.

Details

Journal of Economic Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0144-3585

Keywords

Article
Publication date: 10 January 2023

Mehdi Mili, Asma Yahiya Al Amoodi and Hana Bawazir

This study aims to investigate the asymmetric impact of daily announcements regarding COVID-19 on investor sentiment in the stock market.

Abstract

Purpose

This study aims to investigate the asymmetric impact of daily announcements regarding COVID-19 on investor sentiment in the stock market.

Design/methodology/approach

This study uses a Non-Linear Autoregressive Distribution Lag (NARDL) model that relies on positive and negative partial sum decompositions of the Coronavirus indicators. Five investor sentiments had been used and the analysis is conducted on the full sample period from 24th February 2020 to 25th March 2021.

Findings

The results show that new cases have a greater impact on investor sentiment compared to daily announcements of new deaths related to COVID-19. In addition to revealing a significant impact of new COVID-19 new cases and new death announcements on a daily basis on investor sentiment over the short- and long-term, this paper also highlights the nonlinearity and asymmetry of this relationship in the short and long run. Investors' sentiments are more affected by negative news regarding Covid 19 than positive news.

Originality/value

Financial markets have been severely affected by COVID-19 pandemic. This study is the first to measure the extent of reaction of investors to positive and negative announcements of COVID-19. Interestingly, this study examines the asymmetric effect of daily announcements on new cases and new deaths by COVID-19 on investor sentiments and derive many implications for portfolio managers.

Details

Review of Behavioral Finance, vol. 16 no. 1
Type: Research Article
ISSN: 1940-5979

Keywords

Article
Publication date: 28 February 2023

Mohamed Albaity, Ray Saadaoui Mallek and Hasan Mustafa

This study examined the impact of; COVID-19 investor sentiment, COVID-19 cases, geopolitical risk (GPR), economic policy uncertainty (EPU), oil returns and Islamic banking on bank…

Abstract

Purpose

This study examined the impact of; COVID-19 investor sentiment, COVID-19 cases, geopolitical risk (GPR), economic policy uncertainty (EPU), oil returns and Islamic banking on bank stock returns. In addition, it examined whether Islamic bank stock returns differed from conventional banks when interacting with selected variables.

Design/methodology/approach

This study consisted of 137 conventional and Islamic stock market listed banks in 16 Middle East and North Africa (MENA) countries from February 2020 to July 2021. Monthly data were used for bank stock returns, number of COVID-19 cases, COVID-19 investor sentiment, oil price and EPU, while GPR data were obtained annually. This paper used unconditional quantile regression (UQR) in its analysis.

Findings

COVID-19 investor sentiment and EPU negatively influenced bank stock returns. However, oil returns were only positive and significant in first quantile. Conversely, GPR negatively impacted bank returns up to the median quantile, while the impact was positive in upper quantiles. Islamic banks outperformed conventional banks in all quantiles. Additionally, GPR negatively influenced Islamic bank returns up to 75th quantile, while oil returns negatively impacted Islamic bank returns up to 95th quantile. Ultimately, COVID-19 investor sentiment and EPU positively influenced Islamic bank returns up to 95th quantile.

Practical implications

Market conditions must be considered when implementing investment decisions and policies, as the effects of market shocks are mostly asymmetrical. For example, it is important for international investors to take into consideration asymmetric factors, such as market uncertainty in oil market. Especially in bearish Islamic markets, bad news concerning uncertainty can be perceived as riskier than good news.

Social implications

A change in health sentiment, such as COVID-19 cases and COVID-19 investor sentiment, can be used to determine future direction of conventional and Islamic stock markets. Asymmetric effects associated with market news can make portfolio management more effective. COVID-19 investor sentiment states can be used to predict Islamic market index dynamics in MENA region.

Originality/value

This paper offered insight into heterogeneity of market conditions and dependencies of Islamic banks' stock market returns on COVID-19 investor sentiment and uncertainty, among others that should be considered when implementing investment decisions and policies.

Details

International Journal of Emerging Markets, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 21 June 2022

Kingstone Nyakurukwa and Yudhvir Seetharam

The authors examine how financial analysts respond to online investor sentiment when updating recommendations for specific stocks in South Africa. The aim is to establish whether…

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Abstract

Purpose

The authors examine how financial analysts respond to online investor sentiment when updating recommendations for specific stocks in South Africa. The aim is to establish whether online sentiment contains significant information that can influence analyst recommendations. The authors follow up the above by examining when online investor sentiment is most associated with analyst recommendation changes.

Design/methodology/approach

For online investor sentiment proxies, the authors make use of the social media sentiment and news media sentiment scores provided by Bloomberg Inc. The sample size includes all companies listed on the Johannesburg Stock Exchange All Share Index. The study uses traditional ordinary least squares to examine the relation at the mean and quantile regression to identify the scope of the relationship across the distribution of the dependent variable.

Findings

The authors find evidence that pre-event news sentiment significantly influences analyst recommendation changes while no significant relationship is found with the Twitter sentiment. Further analysis shows that news sentiment is more influential when the recommendation changes are moderate (in the middle of the conditional distribution of the recommendation changes).

Originality/value

The study is the one of the first to examine the association between online sentiment and analyst recommendation changes in an emerging market using high frequency data. The authors also make a direct comparison between social media sentiment and news media sentiment, some of the most used contemporary investor sentiment proxies.

Details

Managerial Finance, vol. 49 no. 1
Type: Research Article
ISSN: 0307-4358

Keywords

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