Swings in sentiment and stock returns: Evidence from a frontier market
MetadataShow full item record
We investigate the impact of noise trader sentiment on the formation of expected returns and volatility in the context of the frontier stock market of Bangladesh. Empirical results based on a GARCH-in-mean framework show that shifts in investor sentiment are significantly positively correlated with excess market returns. Evidence of this direct impact of changes in sentiment on expected returns is robust across sample periods and alternative measures of sentiment we use in the analysis. In addition, we find that the magnitude of bullish or bearish sentiment changes also exerts an indirect effect on expected returns through its asymmetric influence on the conditional volatility process. Overall, our results suggest that shifts in investor sentiment in the market represent a systematic risk factor that is priced in equilibrium.
Showing items related by title, author, creator and subject.
Smales, Lee (2017)The presence of investor sentiment pushes asset prices away from the equilibrium level justified by underlying fundamentals. While sentiment is not directly observable, identifying appropriate proxies and, quantifying the ...
Gurrib, Muhammad Ikhlaas (2008)This study gives an insight into the behaviour and performance of large speculators and large hedgers in 29 US futures markets. Using a trading determinant model and priced risk factors such as net positions and sentiment ...
Smales, Lee (2016)I examine the relationship between aggregate news sentiment, S&P 500 index (SPX) returns, and changes in the implied volatility index (VIX). I find a significant negative contemporaneous relationship between changes in ...