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

Wang, Wenzhao; Su, Chen; Duxbury, Darren

Authors

Chen Su

Darren Duxbury



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.

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

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