Sentiment and stock market volatility revisited: A time–frequency domain approach

Maitra, Debasish; Dash, Saumya Ranjan

doi:10.1016/j.jbef.2017.07.009

Cited by 14 publications

(15 citation statements)

References 62 publications

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“…India Volatility Index (VIX) is a Nifty Call option-based implied ex-ante volatility measure which manifests the investor's fear and allows direct volatility trading. Maitra and Dash (2017) reported an upward trend in volatility in India along with the varying level of an investor's sentiments. These sentiments get adequately reflected in the India VIX.…”

Section: Introductionmentioning

confidence: 99%

Asymmetric relationship between implied volatility, index returns and trading volume: an application of quantile regression model

Siddiqui

Roy

2019

Decision

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The study explored a vital issue on market microstructure that is the relationship between volatility, index returns and trading volume within the Indian stock market. The daily closing prices of select indices, from 2 March 2009 to 31 July 2018, were taken. The investor's fear index India Volatility Index (VIX) was used as an implied volatility measure popularly the investor's fear index, whereas Nifty50 daily returns and trading volume were considered. Toda-Yamamoto causality test provided limited information about the causal relationship among the variables. The results of the Toda-Yamamoto test captured only the central values of the dependent variable's distribution; therefore, quantile regression models (QRM) were estimated. Through QRM, the asymmetric impact of returns was estimated on volume and volatility changes. The asymmetric relationship of stock returns with changes in volatility and volume distribution was found significant. It was found to be stronger at extreme ends of the dependent variable's distribution. The study supports the behavioural justification for a contemporaneous negative return-volatility relationship but conditionally.Evidence of investor's heterogenous beliefs is found. The evidence of leverage effect was also significant for the lagged period. The contemporaneous negative relationship was found between volatility and volume changes highlighting that the investors in Indian markets are risk-averse. But the positive lagged effect of changes in volatility on trading volume supports sequential arrival of information hypothesis and affirmed the presence of noise traders. They make the information arrival sequential and allow the slow diffusion of information. India VIX potentially can be used for portfolio hedging purposes.

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Section: Introductionmentioning

confidence: 99%

Asymmetric relationship between implied volatility, index returns and trading volume: an application of quantile regression model

Siddiqui

Roy

2019

Decision

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“…Investor sentiment is a set of emotions, feelings and expectations of investors towards risk and return associated with their investment. Hence, positive (negative) perception contributes toward the overvaluation (undervaluation) of securities (Maitra & Dash, 2017). Baker and Wurgler (2006;2007) are considered land mark studies on the topic.…”

Section: Corporate Governance Investor Sentiment Financial Liberalization and Firm Riskmentioning

confidence: 99%

“…Market participants are more conscious of the cataclysmic causes and consequences of stock market volatility (Dai et al, 2020;Liang et al, 2020) as these deter investors' participation, risk sharing and distorts investment decisions (Fang et al, 2020). The presence of persistent market volatility is detrimental for the smooth functioning of stock market thereby raising the required rate of return for bearing higher systematic risk and discouraging firms from capital expansion, which in turn thwarts productive investment and impedes economic growth (Maitra et al, 2017;Mathew et al, 2018;Wang et al, 2020). Theoretically, conflicting views exist in literature regarding the accurate methodology for the estimation of required rate of returns since the seminal work of Markowitz (1952).…”

Section: Introductionmentioning

confidence: 99%

“…Further, there is a plethora of empirical research on the theoretical notion of the role of investor sentiment in shaping capital market volatility (see e.g. Audrino et al, 2020;Kumari, 2019;Maitra & Dash, 2017;Pandey & Sehgal, 2019;Seok et al, 2019;Shahzad et al, 2017). Mispricing of securities triggered disproportionate volatility during the financial crises of 2007-08 that reinforced the considerable influence of emotional aspects on investment decisions (Fang et al, 2020).…”

Section: Introductionmentioning

confidence: 99%

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Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment

Hussain

Akbar

Malik

et al. 2021

JABS

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Purpose The purpose of this paper is to examine the impact of corporate governance, investor sentiment and financial liberalization on downside systematic risk and the interplay of socio-political turbulence on this relationship through static and dynamic panel estimation models. Design/methodology/approach The evidence is based on a sample of 230 publicly listed non-financial firms from Pakistan Stock Exchange (PSX) over the period 2008–2018. Furthermore, this study analyzes the data through Blundell and Bond (1998) technique in the full sample as well sub-samples (big and small firms). Findings The authors document that corporate governance mechanism reduces the downside risk, whereas investor sentiment and financial liberalization increase the investors’ exposure toward downside risk. Particularly, the results provide some new insights that the socio-political turbulence as a moderator weakens the impact of corporate governance and strengthens the effect of investor sentiment and financial liberalization on downside risk. Consistent with prior studies, the analysis of sub-samples reveals some statistical variations in large and small-size sampled firms. Theoretically, the findings mainly support agency theory, noise trader theory and the Keynesians hypothesis. Originality/value Stock market volatility has become a prime area of concern for investors, policymakers and regulators in emerging economies. Primarily, the existence of market volatility is attributed to weak governance, irrational behavior of market participants, the liberation of financial policies and sociopolitical turbulence. Therefore, the present study provides simultaneous empirical evidence to determine whether corporate governance, investor sentiment and financial liberalization hinder or spur downside risk in an emerging economy. Furthermore, the work relates to a small number of studies that examine the role of socio-political turbulence as a moderator on the relationship of corporate governance, investor sentiment and financial liberalization with downside systematic risk.

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“…Meanwhile, time and stock size are two factors that researchers need to consider when studying the relationship between investor sentiment and stock return volatility. Investors' emotions have a larger impact on stock volatility when the stock size is small and the period is short [15]. What's more, the spillover effect is an important characteristic of the effect of investor sentiment.…”

Section: Investment Sentiment and Stock Return Volatilitymentioning

confidence: 99%

Investment Sentiment in Finance Market

Han¹,

Shan²,

Wang³

2021

Proceedings of the 2021 3rd International Conference on Economic Management and Cultural Industry (ICEMCI 2021)

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Investment emotions are a huge topic in investment finance. Investment emotions influence the entire investment process, from choices to decisions to returns. However, not everyone has a deep understanding of investment sentiment. This article provides detailed information on how to measure investment sentiment and how it affects financial markets. First, some of the indicators that are already available today are systematically described, for example, Commitment of traders, Volatility index, Moving average, etc. We compare the strengths and weaknesses of each indicator. After that, we illustrate the performance of investment sentiment in different financial markets to demonstrate the impact of investment sentiment on financial markets. We present the application of investment sentiment to big data analytics. Finally, we suggest the need to have a big picture view and not blindly listen to financial news and other advice to avoid emotional investing. We conclude that investment sentiment impacts investors' decisions as well as investment returns.

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Sentiment and stock market volatility revisited: A time–frequency domain approach

Cited by 14 publications

References 62 publications

Asymmetric relationship between implied volatility, index returns and trading volume: an application of quantile regression model

Asymmetric relationship between implied volatility, index returns and trading volume: an application of quantile regression model

Downside systematic risk in Pakistani stock market: role of corporate governance, financial liberalization and investor sentiment

Investment Sentiment in Finance Market

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