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Bootstrap rolling-window Granger causality dynamics between momentum and sentiment: implications for investors

Author

Listed:
  • Mohamed Sahbi Nakhli

    (University of Kairouan
    University of Sousse)

  • Abderrazak Dhaoui

    (University of Sousse
    Ipag Business School (IPAG Lab))

  • Julien Chevallier

    (IPAG Business School (IPAG Lab)
    Université Paris 8 (LED))

Abstract

This paper seeks to examine the unidirectional versus bidirectional Granger causality between investors’ sentiment and momentum strategies. It is based on the full sample Granger causality test and the recent rolling-window bootstrap approach. We also applied a probit model to the extent to which the probability that investors’ sentiment and momentum strategies influence each other. Our results suggest bidirectional Granger causality between investor sentiment and momentum strategy with unstable causality dynamics over time. We find that ADS and VIX positively affect the likelihood that investor sentiment Granger causes momentum strategy and negatively impact the probability that momentum strategy Granger causes investor sentiment. Gold harms the likelihood that investors’ sentiment and momentum strategies affect each other. The research design is unique to combine bootstrap rolling-window Granger causality tests between Sentiment and Momentum to assess investors’ implications in terms of confidence, uncertainty, aggressiveness, or optimism versus Pessimism.

Suggested Citation

  • Mohamed Sahbi Nakhli & Abderrazak Dhaoui & Julien Chevallier, 2022. "Bootstrap rolling-window Granger causality dynamics between momentum and sentiment: implications for investors," Annals of Finance, Springer, vol. 18(2), pages 267-283, June.
    • Handle: RePEc:kap:annfin:v:18:y:2022:i:2:d:10.1007_s10436-021-00399-z
    DOI: 10.1007/s10436-021-00399-z
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    1. Florin Cornel Dumiter & Florin Turcaș & Ștefania Amalia Nicoară & Cristian Bențe & Marius Boiță, 2023. "The Impact of Sentiment Indices on the Stock Exchange—The Connections between Quantitative Sentiment Indicators, Technical Analysis, and Stock Market," Mathematics, MDPI, vol. 11(14), pages 1-26, July.
    2. Gaies, Brahim & Nakhli, Mohamed Sahbi & Ayadi, Rim & Sahut, Jean-Michel, 2022. "Exploring the causal links between investor sentiment and financial instability: A dynamic macro-financial analysis," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 290-303.
    3. Kanzari, Dalel & Nakhli, Mohamed Sahbi & Gaies, Brahim & Sahut, Jean-Michel, 2023. "Predicting macro-financial instability – How relevant is sentiment? Evidence from long short-term memory networks," Research in International Business and Finance, Elsevier, vol. 65(C).

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