The Effects of Sentiment on Market Return and Volatility and The Cross-Sectional Risk Premium of Sentiment-affected Volatility
نویسندگان
چکیده
We construct investor sentiment of UK stock market using the procedure of principal component analysis. Using sentiment-augmented EGARCH component model, we analyse the impacts of sentiment on market excess return, the permanent component of market volatility and the transitory component of market volatility. Bullish sentiment leads to higher market excess return while bearish sentiment leads to lower excess return. Sentiment-augmented EGARCH component model compares favourably to the original EGARCH component model which does not take investor sentiment into account. Furthermore, we test the cross-sectional risk premia of the permanent and transitory components of sentiment-affected volatility in the framework of ICAPM. Key Terms: investor sentiment; principal component analysis; EGARCH component model; ICAPM; cross-sectional risk premium
منابع مشابه
The Threshold Effect of Investors Sentiment On Stock Market Return
The behavioral financial perspective shows some changes in the price of securities have no fundamental reason and depend on the irrational behaviors of investors as measured by the investor sentiment. Investor sentiment plays an important role in the volatility of securities prices and returns. At first, by finding the thresholds and testing these points statistically, we showed that the invest...
متن کاملOn Individual and Institutional Noise Trading
Previous research suggests that individual investor sentiment has incremental explanatory power for returns of small cap stocks, value stocks, stocks with low institutional ownership, and stocks with lower prices (Kumar and Lee (2003)) and that there is a strong link between institutional sentiment and the returns of large stocks (Brown and Cliff (2004)). With respect to return volatility, Jack...
متن کاملInvestor Sentiment , Mutual Fund Flows and its Impact on Returns and Volatility
Purpose – This paper investigates the impact of individual investor sentiment on the return process and conditional volatility of three main US market indices (DJIA, S&P500 and Nasdaq100). Individual investor sentiment is measured by aggregate money flows in and out of domestically oriented US mutual funds. Design/Methodology/Approach – A GARCH-in-mean specification is used, where our measure f...
متن کاملModeling Volatility Spillovers in Iran Capital Market
This paper investigates the conditional correlations and volatility spillovers between the dollar exchange rate return, gold coin return and crude oil return to stock index return. Monthly returns in the 144 observations (2005 - 2017) are analyzed by constant conditional correlation, dynamic conditional correlation, VARMA-GARCH and VARMA-AGARCH models. So this paper presents interdependences in...
متن کاملVolatility Spillover of the Exchange Rate and the Global Economy on Iran Stock Market
Financial markets are one of the most fundamental markets in any country. In the financial markets, the securities market and the foreign exchange market are sensitive sectors. These two markets are affected by fluctuations and economic cycles so reflect economic changes rapidly. Changes in the returns of one market due to arbitrage conditions during time lead to changes in the returns of other...
متن کامل