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Investor Sentiment and Investment Decision-Making

In: Risk-Return Relationship and Portfolio Management

Author

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  • Raj S. Dhankar

    (University of Delhi)

Abstract

We develop an investor sentimentInvestor sentiment index that captures the investor behaviour and analyses its suitability in explaining asset prices after augmenting it in multifactor asset pricing models. Seven different proxies including Sensex P/E ratiosP/E Ratio , dividend premium, modified advances to declines ratio, number of new equity issues, ratio of total equity issues to total equity and debt issues, turnover of BSE and volatility premiumVolatility premium have been utilized. The investor sentimentInvestor sentiment index thus created mimics the movement of Sensex. Investor sentimentInvestor sentiment finds significance in explaining the returns for most of the portfolioPortfolio under the different multifactor models. Fama–French three-factor modelFama–French three-factor model again lags in explaining the portfolioPortfolio returns while Carhart four-factor modelCarhart four-factor model and residual momentumResidual momentum factor model match in performance for explaining stock returns.

Suggested Citation

  • Raj S. Dhankar, 2019. "Investor Sentiment and Investment Decision-Making," India Studies in Business and Economics, in: Risk-Return Relationship and Portfolio Management, chapter 0, pages 307-319, Springer.
    • Handle: RePEc:spr:isbchp:978-81-322-3950-5_20
    DOI: 10.1007/978-81-322-3950-5_20
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