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Investor Sentiment and (Anti) Herding in the Currency Market: Evidence from Twitter Feed Data

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  • Xolani Sibande
  • Rangan Gupta
  • Riza Demirer
  • Elie Bouri

Abstract

This paper establishes a direct link between (anti) herding behavior in currency markets and investor sentiment, proxied by a social media based investor happiness index built on Twitter feed data. Our analysis of daily data for nine developed market currencies suggests that the foreign exchange market is generally characterized by strong anti-herding behavior. Utilizing the quantile-on-quantile (QQ) approach, developed by Sim and Zhou (2015), we show that the relationship between investor sentiment and anti-herding is in fact regime specific, with anti-herding behavior particularly prominent during states of extreme investor sentiment. The effect of sentiment on anti-herding is generally stronger in extreme bullish sentiment states, while average sentiment is associated with less severe anti-herding. The findings lend support to the behavioral factors for asset pricing models and suggest that real time investor sentiment signals can be utilized to monitor potential speculative activities in the currency market.

Suggested Citation

  • Xolani Sibande & Rangan Gupta & Riza Demirer & Elie Bouri, 2023. "Investor Sentiment and (Anti) Herding in the Currency Market: Evidence from Twitter Feed Data," Journal of Behavioral Finance, Taylor & Francis Journals, vol. 24(1), pages 56-72, January.
    • Handle: RePEc:taf:hbhfxx:v:24:y:2023:i:1:p:56-72
    DOI: 10.1080/15427560.2021.1917579
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    1. Elie Bouri & Riza Demirer & Rangan Gupta & Jacobus Nel, 2021. "COVID-19 Pandemic and Investor Herding in International Stock Markets," Risks, MDPI, vol. 9(9), pages 1-11, September.
    2. Ali, Sara & Badshah, Ihsan & Demirer, Riza, 2023. "Anti-herding by hedge funds and its implications for expected returns," Journal of Economic Behavior & Organization, Elsevier, vol. 211(C), pages 31-48.

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    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G40 - Financial Economics - - Behavioral Finance - - - General

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