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Time and frequency relationship between household investors’ sentiment index and US industry stock returns

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  • Khan, Muhammad Asif
  • Hernandez, Jose Arreola
  • Shahzad, Syed Jawad Hussain

Abstract

We construct the household investors’ sentiment index for the US using weekly Google trend data. We examine the causal effects between the sentiment index and US industry returns using wavelet Granger causality and frequency domain causality approaches. Our results confirm causality from FEARS to stock returns in the short and medium terms. The sentiment index has causal effects on and stronger correlation with the overall stock market index, financials, technology, health care, and consumer discretionary sectors. Also, although the household investors’ sentiment index causes almost all sector stock returns, not all sector stock returns cause the household investors’ sentiment index.

Suggested Citation

  • Khan, Muhammad Asif & Hernandez, Jose Arreola & Shahzad, Syed Jawad Hussain, 2020. "Time and frequency relationship between household investors’ sentiment index and US industry stock returns," Finance Research Letters, Elsevier, vol. 36(C).
    • Handle: RePEc:eee:finlet:v:36:y:2020:i:c:s1544612319304465
    DOI: 10.1016/j.frl.2019.101318
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    References listed on IDEAS

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    Cited by:

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    2. Li, Sufang & Xu, Qiufan & Lv, Yixue & Yuan, Di, 2022. "Public attention, oil and gold markets during the COVID-19: Evidence from time-frequency analysis," Resources Policy, Elsevier, vol. 78(C).
    3. Dhasmana, Samriddhi & Ghosh, Sajal & Kanjilal, Kakali, 2023. "Does investor sentiment influence ESG stock performance? Evidence from India," Journal of Behavioral and Experimental Finance, Elsevier, vol. 37(C).
    4. 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.
    5. Yuan Li & Yu Zhang, 2021. "Investor Sentiment, Idiosyncratic Risk, and Stock Price Premium: Evidence From Chinese Cross-Listed Companies," SAGE Open, , vol. 11(2), pages 21582440211, June.
    6. Akter, Maimuna & Cumming, Douglas & Ji, Shan, 2023. "Natural disasters and market manipulation," Journal of Banking & Finance, Elsevier, vol. 153(C).
    7. Hsu, Yu-Lin & Tang, Leilei, 2022. "Effects of investor sentiment and country governance on unexpected conditional volatility during the COVID-19 pandemic: Evidence from global stock markets," International Review of Financial Analysis, Elsevier, vol. 82(C).
    8. Zhao, Lu-Tao & Zheng, Zhi-Yi & Wei, Yi-Ming, 2023. "Forecasting oil inventory changes with Google trends: A hybrid wavelet decomposer and ARDL-SVR ensemble model," Energy Economics, Elsevier, vol. 120(C).

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    More about this item

    Keywords

    Google search volume; Household investors’ sentiment index; Wavelet Granger causality; US stock returns;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • 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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