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Do investors’ sentiment dynamics affect stock returns? Evidence from the US economy

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  • Dergiades, Theologos

Abstract

This paper contributes to the understanding of the non-linear causal linkage between investors’ sentiment dynamics and stock returns for the US economy. Employing the sentiment index developed by Baker and Wurgler [Baker, M., Wurgler, J., 2007. Investor sentiment in the stock market. Journal of Economic Perspectives 21 (2), 129–151] and within a non-linear causality framework, we found that sentiment embodies significant predictive power with respect to stock returns.

Suggested Citation

  • Dergiades, Theologos, 2012. "Do investors’ sentiment dynamics affect stock returns? Evidence from the US economy," Economics Letters, Elsevier, vol. 116(3), pages 404-407.
    • Handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:404-407
    DOI: 10.1016/j.econlet.2012.04.018
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    More about this item

    Keywords

    Investors’ sentiment; Stock returns; Non-linear Granger causality;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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