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The Epistemological Role Of S&P 500 Signal’S Nonstationarity On Investors’ Dynamic Sentiment Formation: Evidence For Investors’ Prospect Theory Preferences

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  • Kamberi, Gojart

    (University of Skopje)

Abstract

Financial signals’ abrupt spectral changes in temporal scale correspond to the perception bias on risk which is a well-known epistemologically decision-making factor in behavioral finance research. In this paper, we explored the epistemological role of S&P 500 signal’s non-stationarity on investors’ sentiment formation, by analyzing the time-frequency dependency of investors’ sentiment on the S&P 500 through a cross wavelet transform analysis to further explore their wavelet coherence (co-movements). Results indicate that S&P 500 signal’s abrupt spectral changes across time do have a statistically significant impact on the investors’ sentiment formation. Moreover, a comparative analysis of the wavelet coherences between the Bullish/Bearish market sentiments and the S&P 500’s signal, reveals the investors’ dynamic (historical) epistemological bias toward risk, which corresponds with the dynamic prospect theory investment preferences.

Suggested Citation

  • Kamberi, Gojart, 2023. "The Epistemological Role Of S&P 500 Signal’S Nonstationarity On Investors’ Dynamic Sentiment Formation: Evidence For Investors’ Prospect Theory Preferences," UTMS Journal of Economics, University of Tourism and Management, Skopje, Macedonia, vol. 14(2), pages 160-165.
    • Handle: RePEc:ris:utmsje:0354
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    More about this item

    Keywords

    signal; sentiment; time; frequency; epistemology;
    All these keywords.

    JEL classification:

    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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