The conditional impact of investor sentiment in global stock markets: A two-channel examination

Wang, Wenzhao; Su, Chen; Duxbury, Darren

Abstract

While investor sentiment has been shown to have a robust, direct impact on stock returns, we know little about how it impacts returns through an indirect channel from conditional volatility. We conduct a global study of investor sentiment across 40 international stock markets to examine the impact of investor sentiment on stock returns via both direct and indirect channels and how the impact varies across bull and bear market regimes. Using turnover ratio as the sentiment proxy and applying GARCH-type models, we confirm a conditional impact of investor sentiment on stock returns via both channels: In bull regimes, optimistic (pessimistic) shifts in investor sentiment would increase (decrease) stock returns, while in bear regimes, optimistic (pessimistic) shifts would decrease (increase) stock returns.

Citation

Wang, W., Su, C., & Duxbury, D. (2022). The conditional impact of investor sentiment in global stock markets: A two-channel examination. Journal of Banking and Finance, 138, Article 106458. https://doi.org/10.1016/j.jbankfin.2022.106458

• Journal Article Type: Article
• Acceptance Date: Mar 4, 2022
• Online Publication Date: Mar 6, 2022
• Publication Date: 2022-05
• Deposit Date: Mar 14, 2022
• Publicly Available Date: Sep 7, 2023
• Journal: Journal of Banking & Finance
• Print ISSN: 0378-4266
• Publisher: Elsevier
• Peer Reviewed: Peer Reviewed
• Volume: 138
• Article Number: 106458
• DOI: https://doi.org/10.1016/j.jbankfin.2022.106458
• Keywords: Conditional volatility, Investor sentiment, Market regime, Stock return, Turnover ratio
• Public URL: http://researchrepository.napier.ac.uk/Output/2853744