Asymmetric impacts of individual investor sentiment on the time-varying risk-return relation in stock market

2022 ◽  
Vol 78 ◽  
pp. 177-194
Author(s):  
Zhifang He
Keyword(s):  
Stock Market ◽  
Investor Sentiment ◽  
Time Varying ◽  
Individual Investor ◽  
Risk Return

scholarly journals Investor Sentiment in the Stock Market

2007 ◽  
Vol 21 (2) ◽  
pp. 129-151 ◽  
Author(s):  
Malcolm Baker ◽  
Jeffrey Wurgler
Keyword(s):  
Stock Market ◽  
Behavioral Finance ◽  
Stock Prices ◽  
Investor Sentiment ◽  
Cash Flows ◽  
Individual Investors ◽  
Individual Investor ◽  
Top Down ◽  
Limits To Arbitrage ◽  
Future Cash Flows

Investor sentiment, defined broadly, is a belief about future cash flows and investment risks that is not justified by the facts at hand. The question is no longer whether investor sentiment affects stock prices, but how to measure investor sentiment and quantify its effects. One approach is “bottom up,” using biases in individual investor psychology, such as overconfidence, representativeness, and conservatism, to explain how individual investors underreact or overreact to past returns or fundamentals The investor sentiment approach that we develop in this paper is, by contrast, distinctly “top down” and macroeconomic: we take the origin of investor sentiment as exogenous and focus on its empirical effects. We show that it is quite possible to measure investor sentiment and that waves of sentiment have clearly discernible, important, and regular effects on individual firms and on the stock market as a whole. The top-down approach builds on the two broader and more irrefutable assumptions of behavioral finance—sentiment and the limits to arbitrage—to explain which stocks are likely to be most affected by sentiment. In particular, stocks that are difficult to arbitrage or to value are most affected by sentiment.

scholarly journals On the hedging benefits of REITs: The role of risk aversion and market states

2021 ◽  
Vol 10 (2) ◽  
pp. 126-132
Author(s):  
Riza Demirer ◽  
Asli Yuksel ◽  
Aydin Yuksel
Keyword(s):  
Stock Market ◽  
Risk Aversion ◽  
Risk Reduction ◽  
Significant Risk ◽  
Time Varying ◽  
Hedging Strategy ◽  
Risk Return ◽  
Market Risks ◽  
The U.S

We propose a dynamic, forward-looking hedging strategy to manage stock market risks via positions in REITs, conditional on the level of risk aversion. Our findings show that REITs do not only offer significant risk reduction for passive portfolios, but also offer much improved risk-adjusted returns with the greatest benefits observed for Australia, Canada and the U.S. Overall, our findings suggest that time-varying risk aversion can be utilized to (i) establish effective hedges against stock market risks via positions in REITS, and (ii) improve the risk-return profile of passive portfolios.

Investor sentiment, customer satisfaction and stock returns

2015 ◽  
Vol 49 (5/6) ◽  
pp. 827-850 ◽  
Author(s):  
Chi-Lu Peng ◽  
Kuan-Ling Lai ◽  
Maio-Ling Chen ◽  
An-Pin Wei
Keyword(s):  
Customer Satisfaction ◽  
Stock Market ◽  
Stock Returns ◽  
Abnormal Returns ◽  
Investor Sentiment ◽  
Intangible Asset ◽  
Time Varying ◽  
Emotional States ◽  
Content Type ◽  
Intangible Information

Purpose – This study aims to investigate whether and how different sentiments affect the stock market’s reaction to the American Customer Satisfaction Index (ACSI) information. Design/methodology/approach – The portfolio approach, with time-varying risk factor loadings and the asset-pricing models, is borrowed from the finance literature to investigate the ACSI-performance relationship. A direct sentiment index is used to examine how investors’ optimistic, neutral and pessimistic sentiments affect the aforementioned relation. Findings – This paper finds that customer satisfaction is a valuable intangible asset that generates positive abnormal returns. On average, investing in the Strong-ACSI Portfolio is superior to investing in the market index. Even when the stock market holds pessimistic beliefs, investors can beat the market by investing in firms that score well on customer satisfaction. The out-performance of our zero-cost, long–short ACSI strategy also confirms the mispricing of ACSI information in pessimistic periods. Research limitations/implications – Findings are limited to firms covered by the ACSI data. Practical implications – Finance research has further documented evidence of the stock market under-reacting to intangible information. For example, firms with higher research and development expenditures, advertising, patent citations and employee satisfaction all earn superior returns. Literature also proves that investors efficiently react to tangible information, whereas they undervalue intangible information. In summary, combining our results and those reported in the literature, customer satisfaction is value-relevant for both investors and firm management, particularly in pessimistic periods. Originality/value – This study is the first to investigate how sentiment affects the positive ACSI-performance relationship, while considering the time-varying property of risk factors. This study is also the first to show that ACSI plays a more important role during pessimistic periods. This study contributes to the growing literature on the marketing–finance interface by providing better understanding of how investor emotional states affect their perceptions and valuations of customer satisfaction.

The relationship between individual investor sentiment, stock return and volatility

2015 ◽  
Vol 10 (3) ◽  
pp. 504-520 ◽  
Author(s):  
Mustafa Sayim ◽  
Hamid Rahman
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Emerging Market ◽  
Investor Sentiment ◽  
Individual Investor ◽  
Content Type ◽  
Investor Sentiments ◽  
Market Fundamentals ◽  
The Impact

Purpose – The purpose of this paper is to examine the impact of Turkish individual investor sentiment on the Istanbul Stock Exchange (ISE) and to investigate whether investor sentiment, stock return and volatility in Turkey are related. Design/methodology/approach – This study used the monthly Turkish Consumer Confidence Index, published by the Turkish Statistical Institute, as a proxy for individual investor sentiments. First, Turkish market fundamentals were regressed on investor sentiments in order to capture the effects of macroeconomic risk factors on investor sentiments. Then, it used the impulse response functions (IRFs) generated from the vector autoregression (VAR) model to examine the effect of unanticipated movements in Turkish investor sentiment to both stock returns and volatility of the ISE. Findings – The generalized IRFs from VAR shows that unexpected changes in rational and irrational investor sentiment have a significant positive impact on ISE returns. This suggests that a positive investor sentiment tends to increase ISE returns. The study also documents that unanticipated increase in the rational component of Turkish investor sentiment has a negative significant effect on ISE volatility. This might indicate that investors have optimistic expectations of the economy overall with respect to market fundamentals in Turkey. This optimism can result in creating positive expectations, reducing uncertainty, and reducing the volatility of stock market returns. Research limitations/implications – The study was applied only for the period 2004-2010 on the ISE stock returns and volatility. Practical implications – Regardless, investors should know the impact of irrational investor sentiments while establishing investment strategies. The results of this study may also help policy makers stabilize investor sentiments to reduce stock market volatility and uncertainty. Originality/value – This paper adds to the limited understanding of investor sentiment impact on stock return and volatility in an emerging market context.

Time-Varying Risk-Return Trade-off in the Stock Market

2013 ◽  
Vol 45 (4) ◽  
pp. 623-650 ◽  
Author(s):  
HUI GUO ◽  
ZIJUN WANG ◽  
JIAN YANG
Keyword(s):  
Stock Market ◽  
Time Varying ◽  
Trade Off ◽  
Risk Return

Analyzing the Time-Varying Stock Market Risk-Return Relation

2011 ◽  
Author(s):  
C. N. V. Krishnan ◽  
Ralitsa Petkova
Keyword(s):  
Stock Market ◽  
Market Risk ◽  
Time Varying ◽  
Risk Return
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