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Effects of investor sentiment on stock return volatility: A spatio-temporal dynamic panel model

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  • Jiang, Shangwei
  • Jin, Xiu

Abstract

Considering the spatial interaction of stocks, we develop a spatio-temporal dynamic panel model to study the effects of investor sentiment on stock return volatility. We construct a sample using data on A-share stocks from the Shanghai Stock Exchange from January 2012 to December 2018. We find that investor sentiment positively influences stock return volatility. Moreover, this influence exhibits both a temporal cumulative and spatial spillover effect. We also find that this spatio-temporal effect is more sensitive to economic than geographic factors. Our findings demonstrate the presence of a spatio-temporal effect on stock return volatility and emphasize the importance of understanding this effect to avoid risk underestimation. Thus, the proposed model can be of use for both investors and policymakers.

Suggested Citation

  • Jiang, Shangwei & Jin, Xiu, 2021. "Effects of investor sentiment on stock return volatility: A spatio-temporal dynamic panel model," Economic Modelling, Elsevier, vol. 97(C), pages 298-306.
    • Handle: RePEc:eee:ecmode:v:97:y:2021:i:c:p:298-306
    DOI: 10.1016/j.econmod.2020.04.002
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    7. Sourav Prasad & Sabyasachi Mohapatra & Molla Ramizur Rahman & Amit Puniyani, 2022. "Investor Sentiment Index: A Systematic Review," IJFS, MDPI, vol. 11(1), pages 1-27, December.
    8. Zhang, Zhikai & He, Mengxi & Zhang, Yaojie & Wang, Yudong, 2021. "Realized skewness and the short-term predictability for aggregate stock market volatility," Economic Modelling, Elsevier, vol. 103(C).
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    More about this item

    Keywords

    Spatio-temporal dynamic panel model; Investor sentiment; Stock return volatility; Spatio-temporal effect; Spatial spillover effect;
    All these keywords.

    JEL classification:

    • C21 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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