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Effect of Market-Wide Investor Sentiment on South African Government Bond Indices of Varying Maturities under Changing Market Conditions

Author

Listed:
  • Fabian Moodley

    (School of Economic Science, North-West University, Gauteng 1174, South Africa)

  • Sune Ferreira-Schenk

    (School of Economic Science, North-West University, Gauteng 1174, South Africa)

  • Kago Matlhaku

    (School of Economic Science, North-West University, Gauteng 1174, South Africa)

Abstract

The excess levels of investor participation coupled with irrational behaviour in the South African bond market causes excess volatility, which in turn exposes investors to losses. Consequently, the study aims to examine the effect of market-wide investor sentiment on government bond index returns of varying maturities under changing market conditions. This study constructs a new market-wide investor sentiment index for South Africa and uses the two-state Markov regime-switching model for the sample period 2007/03 to 2024/01. The findings illustrate that the effect investor sentiment has on government bond indices returns of varying maturities is regime-specific and time-varying. For instance, the 1–3-year government index return and the over-12-year government bond index were negatively affected by investor sentiment in a bull market condition and not in a bear market condition. Moreover, the bullish market condition prevailed among the returns of selected government bond indices of varying maturities. The findings suggest that the government bond market is adaptive, as proposed by AMH, and contains alternating efficiencies. The study contributes to the emerging market literature, which is limited. That being said, it uses market-wide investor sentiment as a tool to make pronunciations on asset selection, portfolio formulation, and portfolio diversification, which assists in limiting investor losses. Moreover, the findings of the study contribute to settling the debate surrounding the efficiency of bond markets and the effect between market-wide sentiment and bond index returns in South Africa. That being said, it is nonlinear, which is a better modelled using nonlinear models and alternates with market conditions, making the government bond market adaptive.

Suggested Citation

  • Fabian Moodley & Sune Ferreira-Schenk & Kago Matlhaku, 2024. "Effect of Market-Wide Investor Sentiment on South African Government Bond Indices of Varying Maturities under Changing Market Conditions," Economies, MDPI, vol. 12(10), pages 1-22, September.
    • Handle: RePEc:gam:jecomi:v:12:y:2024:i:10:p:265-:d:1487675
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    References listed on IDEAS

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    Cited by:

    1. Thuto NKOMO & Fabian MOODLEY, 2025. "Do Geopolitical Risk and Market Conditions Drive JSE Sector Returns?," Management and Economics Review, Faculty of Management, Academy of Economic Studies, Bucharest, Romania, vol. 10(2), pages 324-341, June.
    2. Fabian Moodley & Sune Ferreira-Schenk & Kago Matlhaku, 2025. "The Effects of Investor Sentiment on Stock Return Indices Under Changing Market Conditions: Evidence from South Africa," IJFS, MDPI, vol. 13(2), pages 1-24, April.

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