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The linkage between aggregate investor sentiment and metal futures returns: A nonlinear approach

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  • Zheng, Yao

Abstract

This paper examines the relationship between aggregate stock market sentiment and metal futures returns. Overall, metal futures have higher returns when investor sentiment is pessimistic rather than optimistic. Further analysis indicates that metal futures returns exhibit asymmetric responses to positive and negative investor sentiment shocks. Temporary and reactive demand shocks and flight to quality concerns may partially explain this asymmetry. In addition, there exists a negative predictive relationship between investor sentiment and metal futures returns, which remains persistent even after controlling for liquidity and open interest. Moreover, this predictive effect of sentiment on metal futures returns is magnified when there is high conditional volatility.

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  • Zheng, Yao, 2015. "The linkage between aggregate investor sentiment and metal futures returns: A nonlinear approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 58(C), pages 128-142.
    • Handle: RePEc:eee:quaeco:v:58:y:2015:i:c:p:128-142
    DOI: 10.1016/j.qref.2015.02.008
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    More about this item

    Keywords

    Metal futures; Investor sentiment; VAR-GARCH-M; Markov regime-switching;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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