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Linkages between Public Sentiments and Stock Market Dynamics in the Context of the Efficient Market Hypothesis

Author

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  • Anton Gerunov

    (Sofia University, Bulgaria)

Abstract

The paper studies whether the dynamics of stock market indices of twelve EU member states are in accordance with the Efficient Market Hypothesis and if any publicly available information can be used to forecast their movements. We fit GARCH(1,3) models to time series of the indices over the period 01.1998 to 05.2013 at monthly frequency in order to examine the informational efficiency of markets. All models show that some publicly available information is underutilized, which hints at the possibility to increase forecasting accuracy by inclusion of additional variables. Additionally in six out of the twelve studied countries information about the economic expectations of the public can forecast index movements. Those results underline the idea that more complex behaviorally- informed models can improve our understanding of the financial markets dynamics.

Suggested Citation

  • Anton Gerunov, 2014. "Linkages between Public Sentiments and Stock Market Dynamics in the Context of the Efficient Market Hypothesis," Ikonomiceski i Sotsialni Alternativi, University of National and World Economy, Sofia, Bulgaria, issue 3, pages 58-71, July.
    • Handle: RePEc:nwe:iisabg:y:2014:i:3:p:58-71
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    Cited by:

    1. Ani Stoitsova-Stoykova, 2017. "Relationship Between Public Expectations and Financial Market Dynamics in South- East Europe Capital Markets," Economic Alternatives, University of National and World Economy, Sofia, Bulgaria, issue 2, pages 237-250, June.

    More about this item

    Keywords

    public sentiments; efficient market hypothesis;

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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