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 predictive ability of stock market factors

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Mohammed Mohammed Elgammal ◽  
Fatma Ehab Ahmed ◽  
David Gordon McMillan
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Five Factor Model ◽  
Trading Strategy ◽  
Expected Returns ◽  
Time Varying ◽  
Content Type ◽  
Varying Coefficients ◽  
One Step ◽  
Market Factors

Purpose This paper aims to ask whether a range of stock market factors contain information that is useful to investors by generating a trading rule based on one-step-ahead forecasts from rolling and recursive regressions. Design/methodology/approach Using USA data across 3,256 firms, the authors estimate stock returns on a range of factors using both fixed-effects panel and individual regressions. The authors use rolling and recursive approaches to generate time-varying coefficients. Subsequently, the authors generate one-step-ahead forecasts for expected returns, simulate a trading strategy and compare its performance with realised returns. Findings Results from the panel and individual firm regressions show that an extended Fama-French five-factor model that includes momentum, reversal and quality factors outperform other models. Moreover, rolling based regressions outperform recursive ones in forecasting returns. Research limitations/implications The results support notable time-variation in the coefficients on each factor, whilst suggesting that more distant observations, inherent in recursive regressions, do not improve predictive power over more recent observations. Results support the ability of market factors to improve forecast performance over a buy-and-hold strategy. Practical implications The results presented here will be of interest to both academics in understanding the dynamics of expected stock returns and investors who seek to improve portfolio performance through highlighting which factors determine stock return movement. Originality/value The authors investigate the ability of risk factors to provide accurate forecasts and thus have economic value to investors. The authors conducted a series of moving and expanding window regressions to trace the dynamic movements of the stock returns average response to explanatory factors. The authors use the time-varying parameters to generate one-step-ahead forecasts of expected returns and simulate a trading strategy.

Corporate culture and stock returns: evidence from Indian companies

2019 ◽  
Vol 12 (4) ◽  
pp. 464-480
Author(s):  
Tariq Aziz ◽  
Valeed Ahmad Ansari ◽  
Mahfooz Alam
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Corporate Culture ◽  
Factor Model ◽  
Market Performance ◽  
Abnormal Returns ◽  
Point Of View ◽  
Content Type ◽  
Market Index ◽  
Stock Market Performance

Purpose The purpose of this paper is to investigate the stock market performance of companies featured in the survey “Best Companies to Work For” as a proxy for corporate culture. Design/methodology/approach The authors employed the portfolio formation and event study methods from finance to examine the linkage between corporate culture and future stocks returns. The lists of India’s best place to work for by Great Place to Work® Institute and Business Today (BT), India’s leading business magazine, form the primary surrogate for a great corporate culture. The authors compared the stock market performance of the culture portfolio vis-à-vis market index, in addition to using Carhart’s (1997) four-factor model. Findings A portfolio of Indian firms that featured in the “Best Companies to Work For” by Great Place to Work© Institute and BT magazine provides a higher return than the market index Sensex both on an ordinary return and on a risk-adjusted basis. The four-factor αs of the value-weighted culture portfolios are significant, implying that these portfolios have provided abnormal returns during the sample period. Moreover, the findings suggest a positive drift in the abnormal returns after inclusion in the “Best Companies to Work For” list. Research limitations/implications The results are largely in conformity with the prediction of the theory that states that corporate culture is an economic asset for a firm that increases its value. Practical implications From an investor’s point of view, the study indicates that investment in “Best Companies to Work For” is a better alternative than passive index investing. Originality/value This study fills the empirical void in the relationship between corporate culture and stock market performance in the Indian context.

On the dynamic relationship between gold investor sentiment index and stock market

2019 ◽  
Vol 16 (3) ◽  
pp. 372-392
Author(s):  
Chaiyuth Padungsaksawasdi
Keyword(s):  
Panel Data ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Return ◽  
Investor Sentiment ◽  
Realized Volatility ◽  
Gold Price ◽  
Content Type ◽  
Industry Level ◽  
Dynamic Relationship

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.

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.

Does investor sentiment differently affect stocks in different sectors? Evidence from China

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hongli Niu ◽  
Yao Lu ◽  
Weiqing Wang
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Investor Sentiment ◽  
Wavelet Coherence ◽  
Chinese Stock Market ◽  
Frequency Method ◽  
Content Type ◽  
Time Frequency ◽  
Dynamic Relationship ◽  
Normal Period

PurposeThis paper aims to investigate the dynamic relationship between the investor sentiment and the return of various sectors in the Chinese stock market.Design/methodology/approachThe wavelet coherence and wavelet phase angle approaches are used to study the lead–lag associations between sentiment index and stock returns in a time–frequency way. The multiscale linear and nonlinear Granger causality tests are performed to explore whether there is a causality between them.FindingsThe empirical results show that during normal period, investor sentiment index has a stronger relationship with stock returns of industrials, consumer discretionary, health care, utilities, real estate and financial sectors. In crisis period, investor sentiment has a significant positive relationship with all industry sectors. In the short term, there is bidirectional causality between investor sentiment and stock returns of all sectors. In the medium and long run, almost all sector stock returns Granger-cause the investors' sentiment index but investor sentiment does not Granger-cause all sectors, which is in contrast to the developed markets.Practical implicationsThe interindustry impact of investment sentiment on the stock market can help construct arbitrage portfolio by investors who are interested in Chinese stock market.Originality/valueThis paper focuses on the industry sector differences of investor sentiment impact on the Chinese stock market. As far as the authors know, this is the first paper to explore the time–frequency relationship between sentiment index and industry stock returns in China using the time–frequency method based on wavelet coherence, which considers the heterogeneity of different types of investors' responses to various economic and financial events.

Accounting for investor sentiment in news and disclosures

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Prajwal Eachempati ◽  
Praveen Ranjan Srivastava
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Firm Value ◽  
Market Price ◽  
Investor Sentiment ◽  
Analysis Tool ◽  
Financial Strategy ◽  
Content Type ◽  
Market Sentiment ◽  
Corporate Disclosures

Purpose This study aims to develop two sentiment indices sourced from news stories and corporate disclosures of the firms in the National Stock Exchange NIFTY 50 Index by extracting sentiment polarity. Subsequently, the two indices would be compared for the predictive accuracy of the stock market and stock returns during the post-digitization period 2011–2018. Based on the findings this paper suggests various options for financial strategy. Design/methodology/approach The news- and disclosure-based sentiment indices are developed using sentiment polarity extracted from qualitative content from news and corporate disclosures, respectively, using qualitative analysis tool “N-Vivo.” The indices developed are compared for stock market predictability using quantitative regression techniques. Thus, the study is conducted using both qualitative data and tools and quantitative techniques. Findings This study shows that the investor is more magnetized to news than towards corporate disclosures though disclosures contain both qualitative as well as quantitative information on the fundamentals of a firm. This study is extended to sectoral indices, and the results show that specific sectoral news impacts sectoral indices intensely over market news. It is found that the market discounts information in disclosures prior to its release. As disclosures in quarterly statements are delayed information input, firms can use voluntary disclosures to reduce the communication gap with investors by using the internet. Managers would do so only when the stock price is undervalued and tend to ignore the market and the shareholder in other cases. Otherwise, disclosure sentiment attracts only long horizon traders. Practical implications Finance managers need to improve disclosure dependence on investors by innovative disclosure methodologies irrespective of the ruling market price. In this context, future studies on investor sentiment would be interesting as they need to capture man–machine interactions reflected in market sentiment showing the interplay of human biases with machine-driven decisions. The findings would be useful in developing the financial strategy for protecting firm value. Originality/value This study is unique in providing a comparative analysis of sentiment extracted from news and corporate disclosures for explaining the stock market direction and stock returns and contributes to the behavioral finance literature.

Shariah-compliant investments and stock returns: evidence from the Indonesian stock market

2017 ◽  
Vol 8 (2) ◽  
pp. 143-160 ◽  
Author(s):  
Devi Lusyana ◽  
Mohamed Sherif
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Positive Impact ◽  
Abnormal Returns ◽  
Stock Index ◽  
Superior Performance ◽  
Investment Performance ◽  
Stock Market Returns ◽  
Content Type ◽  
The Impact

Purpose The purpose of this paper is to investigate the impact of the Indonesia Shariah-compliant Stock Index (ISSI) on the performance of included shares. In essence, the authors ask whether the establishment of the ISSI provides abnormal returns for the firms that are not included in the Jakarta Index. Design/methodology/approach The authors use an event study methodology to estimate cumulative abnormal returns in the days surrounding the event to examine the relationship between Shariah-compliant investments and stock returns. The estimation window of 90 trading days prior to the event (−30) to day 60 after (+60) is adopted. They also use a range of investment performance measures to provide new evidence on whether faith-based ethical investments generate superior performance compared to their unscreened benchmarks. Findings Using daily returns, the Indonesia ISSI and panel data model, the findings show that the inclusion of the ISSI has a positive impact on the financial performance of the included shares during the 41-day event window. The evidence also suggests that the ethical investment has a significant influence on the performance of stock market returns. Research limitations/implications This study offers insights to policymakers, investors and fund managers interested in the indices’ performance. A key conclusion that could be derived by bodies that regulate Islamic products and services is that investors are not only concerned about what is profitable but also what makes their investments ethical. Originality/value Although the global growth of the Islamic capital market products and services has been tremendous in recent years, very few studies focus on the Indonesian market and indeed, none of them devote sufficient attention to Shariah-compliant investments and stock returns.

Big is beautiful: the information content of bank rating changes

2015 ◽  
Vol 16 (3) ◽  
pp. 233-252 ◽  
Author(s):  
Christian Fieberg ◽  
Finn Marten Körner ◽  
Jörg Prokop ◽  
Armin Varmaz
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Information Content ◽  
Abnormal Returns ◽  
Too Big To Fail ◽  
Market Reactions ◽  
Content Type ◽  
Small Banks ◽  
Rating Changes ◽  
Stock Market Reactions

Purpose – The purpose of this paper is to study the information content of about 3,300 global bank rating changes before and after the Lehman bankruptcy in September 2008 to assess if differences in stock market reactions for small and big banks emerge. Design/methodology/approach – The analysis of the stock market reactions of rating changes (upgrades and downgrades) and bank’s size (small and big) is conducted by an event study approach. Findings – The authors find that while upgrades are not associated with significant abnormal bank stock returns, downgrades have a significantly negative effect. This result holds for both small and big banks, while negative abnormal returns are considerably stronger for the former. For small banks, the authors observe an increase in negative cumulative abnormal returns post-Lehman. The lack of a reaction to large banks’ rating downgrades in the narrow [−1,+1] event window indicates that their stock prices may, to some extent, be insulated from negative rating information even post-Lehman, which the authors attribute to an implicit “too big to fail” subsidy anticipated by equity investors. Originality/value – This paper provides insights to the differences in the information content of changes in small and big banks’ credit rating on stock returns that is unrelated to the well-known size effect. Compared to small banks, big banks seem to some extent be insulated from negative rating changes even post-Lehman – contributing to the on-going too big to fail debate.

scholarly journals The impact of supply chain disruptions on stock market returns during COVID-19

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hélène Flore Nguemgaing ◽  
Ana Claudia Sant’Anna
Keyword(s):  
Supply Chain ◽  
Stock Market ◽  
Stock Returns ◽  
Abnormal Returns ◽  
Google Trends ◽  
Meat Processing ◽  
Supply Chain Disruptions ◽  
Stock Market Returns ◽  
Content Type ◽  
The Impact

PurposeHow has COVID-19 impacted meat processors' stock returns? The authors evaluate the effects of supply chain disruptions (e.g. lockdowns and COVID-19 incidences among workers) on stock market prices of meat processors during the COVID-19 pandemic.Design/methodology/approachThis study uses an event study approach to examine the disruptions from COVID-19 through events such as plant shutdowns, the pandemic announcement, lockdown dates and the first case of COVID-19 outbreaks in meat processing plants. The dataset includes S&P 500, Google Trends, financial beta and data collected for 14 US publicly traded meat processing companies.FindingsResults show that nationwide events (e.g. announcement of the pandemic) had no statistically significant impact on average abnormal returns of meat processing companies. Individually, however, firms experienced negative abnormal returns. COVID-19-related events in individual meat processing companies had a temporary negative abnormal return in the days prior to the event.Originality/valueThis study has two main contributions. First, the authors estimate the effect of COVID-19 on the returns of meat processors. Second, the authors use Google Trends to estimate the expected stock markets returns of meat processing companies. This study provides insight to investors on the behavior of industry returns from events such as outbreaks that affect human health.

Stock price reaction on ISO 9001 certification announcement: evidence from Indonesia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Kiryanto Kiryanto ◽  
Indri Kartika ◽  
Zaenudin Zaenudin
Keyword(s):  
Stock Market ◽  
Stock Returns ◽  
Capital Market ◽  
Quality Management System ◽  
Abnormal Returns ◽  
Iso 9001 ◽  
Content Type ◽  
Before And After ◽  
The Impact ◽  
The Capital Market

PurposeCertification information published by a company will be responded by the market. Therefore, the purpose of this study is to examine the impact of ISO 9001 certification on the stock market reaction as indicated by stock returns reaction of companies in Indonesia.Design/methodology/approachThis study used event study method with the period of 13 days. It consists of 6 days before and after ISO 9001 certification announcement and 1 day at the time of the event. It analyzed by using pair sample t-test and one sample t-test. The stock return data is obtained from companies that are ISO 9001 certified and it tested for their stock reactions before and after the certification.FindingsThe results of empirical research showed that the average and companies cumulative abnormal returns in Indonesia react quickly and positively on the first day after ISO 9001 certification announcement. This study proved the differences between abnormal returns before and after the ISO 9001 certification announcement period.Research limitations/implicationsThe company's success in implementing ISO 9001 will have an impact on investment in the capital market with a positive response from stock market players. The implication of this study is the further research can examine directly the impact of ISO 9001 implementation on investor behavior in the capital market.Originality/valueBased on the development of the literature review, this is the first study which examined the impact of ISO 9001 certification announcement on investor reactions in the short term. Therefore, companies in Indonesia need to implement a quality management system for investors in Indonesia.

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