Trading behaviour and market sentiment: Firm-level evidence from an emerging Islamic market

Purpose This study aims to examine the impact of stock market valuation on corporate investment. Specifically, it attempts to understand the influence of both the fundamental and non-fundamental components of stock price on firms’ investment decisions. Design/methodology/approach The study decomposes the market-to-book (MB) ratio into three components, namely, firm-level mispricing, industry mispricing and growth component to examine the effect of each of these components on corporate investment decisions. Based on the literature review, four testable hypotheses concerning the relationship between market valuation and corporate investment have been generated. These hypotheses have been tested on the panel data of 1,311 Indian Public Limited Manufacturing Firms using a pooled data regression model. Findings The study finds that both the fundamental and non-fundamental components of stock price influence the investment decisions along with the cash flow variable. The market valuation–investment nexus is more pronounced in the case of equity-dependent firms, which shows that stock valuation affects corporate investment predominantly through the equity transaction channel. Further, the positive relationship between industry mispricing and corporate investment demonstrates that the market sentiment also affects firms’ investment decisions. Originality/value The relationship between the different components of market value and corporate investment decisions has not been explored in India. Hence, the present study is unique because it breaks the MB ratio down into growth and mispricing components and examines the impact of each of these components on corporate investment.

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Sentiment and Stock Returns: A Case for Conventional and Islamic equities in Pakistan

Business & Economic Review ◽

10.22547/ber/12.3.1 ◽

2020 ◽

Vol 12 (3) ◽

pp. 1-22

Author(s):

Sana Tauseef

Keyword(s):

Stock Returns ◽

Stock Exchange ◽

Investor Sentiment ◽

Principal Component ◽

Relative Strength ◽

Firm Level ◽

Market Sentiment ◽

Level Data ◽

Money Flow ◽

Auto Regression

The study constructs market sentiment index over the period from August 2009 to June 2019 and examines the causality between market sentiment and returns for conventional and Islamic stocks in Pakistan. Using the firm-level data for all stocks listed on Pakistan Stock Exchange, market sentiment index is constructed as the first principal component of six variables: advances-to-decline, premium on dividends, price-to-earnings, relative strength, money flow and turnover rate. We employ the Vector auto-regression model to examine the two-way causal relationship between investor sentiment and aggregate stock return. Our results show that market sentiment has strong predictive power for subsequent conventional stock returns. Sentiment based trading actions of the investors cause persistence in conventional stock returns for one month; however, as these stocks become overpriced, the price movement reverses in two months’ time. In contrast, we do not find any significant association between market sentiment and Islamic stock returns. Our findings are suggestive of different dynamics and investor behavior in Islamic financial markets of Pakistan and along with the existing literature documenting Islamic stocks performance to be at least as good as the conventional stock can be a comfort to the Muslim Investors and may serve as the catalyst to stimulate the growth of Islamic equities.

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Return Determinants in a Deteriorating Market Sentiment: Evidence from Jordan

Modern Applied Science ◽

10.5539/mas.v10n4p168 ◽

2016 ◽

Vol 10 (4) ◽

pp. 168

Author(s):

Imad Zeyad Ramadan

Keyword(s):

Stock Exchange ◽

Manufacturing Firms ◽

Firm Level ◽

Cross Sectional ◽

Industrial Firms ◽

Market Sentiment ◽

Panel Data Regression ◽

Data Regression ◽

Amman Stock Exchange ◽

The Relationship

<p>This paper aimed to examine the relationship between the returns and special characteristics of the industrial firms listed at Amman Stock Exchange; namely risk and size, when market sentiment deteriorates. This study used econometric analysis, utilizing cross-sectional panel data regression. As for the financial data needed for this study, we utilize the information which are distributed six month prior deterioration of market sentiment. Data on the firm-level were derived from the official website of ASE. The sample of firms includes all manufacturing firms listed at ASE through the period 2000-2014. The experimental results of this study have concluded that when market sentiment deteriorates, the risks and returns are associated inversely with returns, this outcome is reliable with the perspective that in times of deteriorating market sentiment, speculators support the “safe” characteristics of firms and move away from the characteristics of firms that are related to speculative activities.</p>

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Marshallian Cross: An Alternative Justification and Related Issues

Voprosy Ekonomiki ◽

10.32609/0042-8736-2013-2-108-120 ◽

2013 ◽

pp. 108-120 ◽

Cited By ~ 1

Author(s):

L. Grebnev

Keyword(s):

Alternative Treatment ◽

Supply And Demand ◽

Firm Level ◽

Economics Courses ◽

Introductory Economics

The paper provides a justification of the laws of supply and demand using the concept of a marginal firm (technology) for the case of perfect competition.The ideological factor of excessive attention to the analysis of marginal parameters at the firm level in the introductory economics courses is discussed. The author connects these issues to the ideas of J. B. Clark and gives an alternative treatment of exploitation.

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