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 investor’s sentiment effect on stock return is a non-linear and asymmetrical relationship. Therefore, using minimization of the sum of residual squares and maximization of determination coefficient, threshold values of Investor sentiments are estimated 23 and 67 respectively. In order to increase the degree of confidence in the results, has been used Dynamic Panel method and estimation of the equation generalized moments. The findings indicate that there is a positive and significant effect between the high level and the range between the two thresholds and indicate that a low level of investor sentiment has been ineffective on stock returns.