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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…

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

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…

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. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 28 June 2022

Hayet Soltani and Mouna Boujelbene Abbes

This study aims to investigate the impact of the COVID-19 pandemic on both of stock prices and investor's sentiment in China during the onset of the COVID-19 crisis.

Abstract

Purpose

This study aims to investigate the impact of the COVID-19 pandemic on both of stock prices and investor's sentiment in China during the onset of the COVID-19 crisis.

Design/methodology/approach

In this study, the ADCC-GARCH model was used to analyze the asymmetric volatility and the time-varying conditional correlation among the Chinese stock market, the investors' sentiment and its variation. The authors relied on Diebold and Yilmaz (2012, 2014) methodology to construct network-associated measures. Then, the wavelet coherence model was applied to explore the co-movements between these variables. To check the robustness of the study results, the authors referred to the RavenPack COVID sentiments and the Chinese VIX, as other measures of the investor's sentiment using daily data from December 2019 to December 2021.

Findings

Using the ADCC-GARCH model, a strong co-movement was found between the investor's sentiment and the Shanghai index returns during the COVID-19 pandemic. The study results provide a significant peak of connectivity between the investor's sentiment and the Chinese stock market return during the 2015–2016 and the end of 2019–2020 turmoil periods. These periods coincide, respectively, with the 2015 Chinese economy recession and the COVID-19 pandemic outbreak. Furthermore, the wavelet coherence analysis confirms the ADCC results, which revealed that the used proxies of the investor's sentiment can detect the Chinese investors' behavior especially during the health crisis.

Practical implications

This study provides two main types of implications: on the one hand, for investors since it helps them to understand the economic outlook and accordingly design their portfolio strategy and allocate decisions to optimize their portfolios. On the other hand, for portfolios managers, who should pay attention to the volatility spillovers between investor sentiment and the Chinese stock market to predict the financial market dynamics during crises periods and hedge their portfolios.

Originality/value

This study attempted to examine the time-varying interactions between the investor's sentiment proxies and the stock market dynamics. Findings showed that the investor's sentiment is considered a prominent channel of shock spillovers during the COVID-19 crisis, which typically confirms the behavioral contagion theory.

Details

Asia-Pacific Journal of Business Administration, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1757-4323

Keywords

Article
Publication date: 4 January 2022

Song Cao, Ziran Li, Kees G. Koedijk and Xiang Gao

While the classic futures pricing tool works well for capital markets that are less affected by sentiment, it needs further modification in China's case as retail investors

Abstract

Purpose

While the classic futures pricing tool works well for capital markets that are less affected by sentiment, it needs further modification in China's case as retail investors constitute a large portion of the Chinese stock market participants. Their expectations of the rate of return are prone to emotional swings. This paper, therefore, explores the role of investor sentiment in explaining futures basis changes via the channel of implied discount rates.

Design/methodology/approach

Using Chinese equity market data from 2010 to 2019, the authors augment the cost-of-carry model for pricing stock index futures by incorporating the investor sentiment factor. This design allows us to estimate the basis in a better way that reflects the relationship between the underlying index price and its futures price.

Findings

The authors find strong evidence that the measure of Chinese investor sentiment drives the abnormal fluctuations in the basis of China's stock index futures. Moreover, this driving force turns out to be much less prominent for large-cap stocks, liquid contracting frequencies, regulatory loosening periods and mature markets, further verifying the sentiment argument for basis mispricing.

Originality/value

This study contributes to the literature by relying on investor sentiment measures to explain the persistent discount anomaly of index futures basis in China. This finding is of great importance for Chinese investors with the intention to implement arbitrage, hedging and speculation strategies.

Details

China Finance Review International, vol. 12 no. 3
Type: Research Article
ISSN: 2044-1398

Keywords

Article
Publication date: 6 September 2021

Saeid Aliahmadi

The main purpose of this study is to investigate the effect of investor sentiment on accounting conservatism in listed companies in the Tehran Stock Exchange (TSE).

Abstract

Purpose

The main purpose of this study is to investigate the effect of investor sentiment on accounting conservatism in listed companies in the Tehran Stock Exchange (TSE).

Design/methodology/approach

In this paper, two models of Ball and Shivakumar (2006) and Basu (1997) have been used for measuring conditional conservatism in accounting. To measure investor sentiment, the author uses the Baker and Wurgler (2006, 2007) index. The research sample consists of 1,820 observations and 182 firms listed on TSE over a ten-year period between 2011 and 2020. This study uses panel data and multivariate regression analysis to test it hypotheses.

Findings

Consistent with this hypothesis that accounting conservatism will increase with investor sentiment, the results showed that Iranian firms recognize economic losses and bad news in a more timely manner during high sentiment periods than during low sentiment periods. This implies that Iranian managers recognize economic losses and bad news in earnings in a more timely manner during periods of high investor sentiment.

Practical implications

This finding provides significant evidence for investors and financial reporting standard-setters in Iran because by removing accounting conservatism from the conceptual framework, managers are not able to present conservative financial reports, and this can intensify the negative impact of investors sentiment in the Iranian capital market. Managers of Iranian companies can reduce information asymmetry and increase capital market efficiency by accelerating the disclosure of bad news. Thus, managers can strategically recognize losses and prevent investors from making emotional decisions that reduce their wealth.

Originality/value

To the best of the authors’ knowledge, this is the first study to empirically examine the impact of investor sentiment on accounting conservatism in a developing market called Iran. This study contributes to the corporate disclosure literature. Also, the result of this study contributes to standard-setters of accounting standards to improve the mandatory disclosure literature on more conservative accounting earnings.

Details

Journal of Financial Reporting and Accounting, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 1985-2517

Keywords

Article
Publication date: 15 January 2021

Ka Shing Cheung and Joshua Lee

Real estate is an asset that is traded in highly segmented, illiquid and informationally inefficient local markets. A short sale in real estate is almost infeasible and…

Abstract

Purpose

Real estate is an asset that is traded in highly segmented, illiquid and informationally inefficient local markets. A short sale in real estate is almost infeasible and therefore impedes informed rational arbitrageurs to trade against mispricing. Thus, real estate returns are prone to sentiment-driven behaviours. Will the impacts on asset returns be identical for different types of sentiment?

Design/methodology/approach

This study argues that not all sentiment effects are created equal. Using the bounds test of the autoregressive distributed lag (ARDL) models, this paper examines how occupier sentiment versus investor sentiment contributes to the short-run and long-run dynamics of commercial real estate returns in Australia.

Findings

The empirical evidence suggests that investor sentiment and occupier sentiment influence return asymmetrically after macroeconomic conditions are controlled for.

Practical implications

The sectoral analysis further reveals that sector-specific sentiment plays a significant role in explaining commercial real estate returns. Furthermore, notable improvement is found in producing more accurate prediction in returns, given that measures of occupier and investor sentiment are appropriately specified in the forecast.

Originality/value

This study is novel in the sense that it acknowledges the impacts of occupiers' and investors' sentiment may be fundamentally different. The unique innovation and contribution of this study to behavioural finance literature are based on a new dataset from the Royal Institute of Chartered Surveyors which includes a survey-based measure of investor sentiment and occupier sentiment.

Article
Publication date: 8 January 2020

Chaiyuth Padungsaksawasdi

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…

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.

Details

International Journal of Managerial Finance, vol. 16 no. 3
Type: Research Article
ISSN: 1743-9132

Keywords

Article
Publication date: 18 September 2019

Mouna Abdelhedi and Mouna Boujelbène-Abbes

The purpose of this paper is to empirically investigate the volatility spillover between the Chinese stock market, investor’s sentiment and oil market, specifically during…

Abstract

Purpose

The purpose of this paper is to empirically investigate the volatility spillover between the Chinese stock market, investor’s sentiment and oil market, specifically during the 2014‒2016 turmoil period.

Design/methodology/approach

This study used the daily and monthly China market price index, oil-price index and composite index of Chinese investor’s sentiment. The authors first use the DCC GARCH model in order to study the correlation between variables. Second, the authors use a continuous wavelet decomposition technique so as to capture both time- and frequency-varying features of co-movement variables. Finally, the authors examine the spillover effects by estimating the BEKK GARCH model.

Findings

The wavelet coherency results indicate a substantial co-movement between oil and Chinese stock markets in the periods of high volatility. BEKK GARCH model outcomes confirm this relation and report the noteworthy bidirectional transmission of volatility between oil market shocks and the Chinese investor’s sentiment, chiefly in the crisis period. These results support the behavioral theory of contagion and highlight that the Chinese investor’s sentiment is a channel through which shocks are transmitted between the oil and Chinese equity markets. Thus, these results are important for Chinese authorities that should monitor the investor’s sentiment to better control the interaction between financial and real markets.

Originality/value

This study makes three major contributions to the existing literature. First, it pays attention to the recent 2015 Chinese stock market bumble. Second, it has gone some way toward enhancing our understanding of the volatility spillover between the investor’s sentiment, investor’s sentiment variation, oil prices and stock market returns (variables of interest) during oil and stock market crises. Third, it uses the continuous wavelet decomposition technique since it reveals the linkage between variables of interest at different time horizons.

Details

International Journal of Emerging Markets, vol. 15 no. 2
Type: Research Article
ISSN: 1746-8809

Keywords

Open Access
Article
Publication date: 10 July 2020

Ranjan Dasgupta and Sandip Chattopadhyay

The determinants of investorssentiment based on secondary stock market proxies in many empirical studies are reported. However, to the best of our knowledge, no study…

1814

Abstract

Purpose

The determinants of investorssentiment based on secondary stock market proxies in many empirical studies are reported. However, to the best of our knowledge, no study undertakes investor sentiment drivers developed from primary survey measures by constructing an investor sentiment index (ISI) in relation to market drivers to date. This study aims to fill this research gap by first developing the ISI for the Indian retail investors and then examining which of the stock market drivers impacts such sentiment.

Design/methodology/approach

The ISI is constructed using the mean scores of eight statements as formulated based on popular direct investor sentiment surveys undertaken across the world. Then, we use the multiple regression approach overall and for top 33.33% (high-sentiment) and bottom 33.33% (low-sentiment) investors based on the responses of 576 respondents on 18 statements (proxying eight study hypotheses) collected in 2016. Moreover, the demography-based classification based investorssentiment is examined to make our results more robust and in-depth.

Findings

On an overall basis, the IPO activities/issues and information certainty, trading volume and momentum and institutional investors’ investment activities market drivers significantly and positively impact retail investors is examined. However, only IPO activities/issues and information certainty influences both high- and low-sentiment investors. It is intriguing to report that nature of the stock markets show conflicting results for high- (negative significant) and low- (positive significant) sentiment investors.

Originality/value

The construction of the ISI from primary survey measure is for the first time in Indian context in relation to investigating the stock market drivers influential to retail investorssentiment. In addition, hypothesized market drivers are also unique, each representing different fundamental and technical characteristics associated with the Indian market.

Details

Rajagiri Management Journal, vol. 14 no. 2
Type: Research Article
ISSN: 0972-9968

Keywords

Article
Publication date: 7 December 2020

Tihana Škrinjarić, Zrinka Lovretin Golubić and Zrinka Orlović

This paper aims to analyze the effects of investorssentiment, return and risk series on one to another of selected exchange rates. The empirical analysis consists of a…

Abstract

Purpose

This paper aims to analyze the effects of investorssentiment, return and risk series on one to another of selected exchange rates. The empirical analysis consists of a time-varying inter-dependence between the observed variables, with the focus on spillovers between the variables.

Design/methodology/approach

Monthly data on the index Sentix, exchange rates EUR–USD, EUR–CHF and EUR–JPY are analyzed from February 2003 to December 2019. The applied methodology consists of vector autoregression models (VAR) with Diebold and Yilmaz (2009, 2011) spillover indices.

Findings

The results of the empirical research indicate that using static analysis could result in misleading conclusions, with dynamic analysis indicating that the financial of 2007-2008 and specific negative events increase the spillovers of shock between the observed variables for all three exchange rates. The sources of shocks in the model change over time because of variables changing their positions being net emitters and net receivers of shocks.

Research limitations/implications

The shortfalls of this study include using the monthly data frequency, as this was available for the authors, namely, investors are interested to obtain new information on a weekly and daily basis, not only monthly. However, at the time of writing this research, we could obtain only monthly data.

Practical implications

As the obtained results are in line with previous literature and were found to be robust, there exists the potential to use such analysis in the future when forecasting risk and return series for portfolio management purposes. Thus, a basic comparison was made regarding the investment strategies, which were based on the results from the estimation. It was shown that using information about shock spillovers could result in strategies that can obtain better portfolio value over time compared to basic benchmark strategies.

Originality/value

First, this paper allows for the spillovers of shocks in variables within the VAR models in all directions. Second, a dynamic analysis is included in the study. Third, the mentioned spillover indices are included in the study as well.

Details

Studies in Economics and Finance, vol. 38 no. 1
Type: Research Article
ISSN: 1086-7376

Keywords

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