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Investor Sentiment and Sector Returns

Author

Listed:
  • Ahmed Salhin
  • Mo Sherif
  • Edward Jones

    (Heriot-Watt University)

Abstract

This paper examines the relationship between investor sentiment and UK stock returns at economy and industry level. Using consumer and business conï¬ dence indicators provided by the European Commission, we provide novel evidence on whether sector-speciï¬ c sentiment differs from the aggregate market sentiment in predicting stock returns for ï¬ ve discrete sector groupings. Using monthly data for the period January 1985 to December 2014, our results indicate that investor sentiment signiï¬ cantly influences stock market returns at economy level and for some industry groups. We ï¬ nd that the overall sentiment-return relationship is dominated by sentiment associated with Manufacturing ï¬ rms. Importantly, parameter estimates for the sector groupings are not consistent, suggesting that the relationship differs across sectors and ï¬ ndings are sensitive to industry characteristics.

Suggested Citation

  • Ahmed Salhin & Mo Sherif & Edward Jones, 2016. "Investor Sentiment and Sector Returns," CFI Discussion Papers 1602, Centre for Finance and Investment, Heriot Watt University.
  • Handle: RePEc:hwe:cfidps:1602
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    References listed on IDEAS

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    Keywords

    Investor Sentiment; Business Conï¬ dence; Granger-Causality; UK Sectors;

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation

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