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Optimism in Financial Markets: Stock Market Returns and Investor Sentiments


  • Chiara Limongi Concetto

    () (Free University of Bolzano‐Bozen, Faculty of Economics, Italy and Sparkasse – Cassa di Risparmio, Italy)

  • Francesco Ravazzolo

    () (Free University of Bolzano‐Bozen, Faculty of Economics, Italy and Centre for Applied Macro and commodity Prices, BI Norwegian Business School, Norway)


This paper investigates how investor sentiment affects stock market returns and evaluates the predictability power of sentiment indices on U.S. and EU stock market returns. As regards the American example, evidence shows that investor sentiment indices have a negative influence on stock market returns. Concerning the European market instead, investigation provides weak results. Moreover, comparing the two markets, where investor sentiment of U.S. market tries to predict the European stock market returns, and vice versa, the analyses indicate a spillover effect from the U.S. to Europe.

Suggested Citation

  • Chiara Limongi Concetto & Francesco Ravazzolo, 2019. "Optimism in Financial Markets: Stock Market Returns and Investor Sentiments," BEMPS - Bozen Economics & Management Paper Series BEMPS56, Faculty of Economics and Management at the Free University of Bozen.
  • Handle: RePEc:bzn:wpaper:bemps56

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    Dynamic Bayesian econometrics; Portfolio choice; Sentiments; Stock Market Predictability;

    JEL classification:

    • C11 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Bayesian Analysis: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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