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Individual Investor Sentiment and Stock Returns - What Do We Learn from Warrant Traders?

Author

Listed:
  • Schmitz, Philipp

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

  • Glaser, Markus

    (Sonderforschungsbereich 504)

  • Weber, Martin

    (Lehrstuhl für ABWL, Finanzwirtschaft, insb. Bankbetriebslehre)

Abstract

In this paper, we propose a measure of individual investor sentiment that is derived from the market for bank-issued warrants. Due to a unique warrant transaction data set from a large discount broker we are able to calculate a daily sentiment measure and test whether individual investor sentiment is related to daily stock returns by using vector autoregressive models and Granger causality tests. We find that there exists a mutual influence of sentiment and stock market returns, but only in the very short-run (one and two trading days). Returns have a negative influence on sentiment, while the influence of sentiment on returns is positive for the next trading day. The influence of stock market returns on sentiment is stronger than vice versa. Our sentiment measure simultaneously avoids problems that are associated with existing sentiment measures, which are based on the closed-end fund discount, stock market transactions, the put-call ratio or investor surveys.

Suggested Citation

  • Schmitz, Philipp & Glaser, Markus & Weber, Martin, 2006. "Individual Investor Sentiment and Stock Returns - What Do We Learn from Warrant Traders?," Sonderforschungsbereich 504 Publications 06-12, Sonderforschungsbereich 504, Universität Mannheim;Sonderforschungsbereich 504, University of Mannheim.
    • Handle: RePEc:xrs:sfbmaa:06-12
    Note: We would like to thank Anders Anderson, Christian Klein, Alexander Klos, Michael Meffert, seminar participants at the
    as

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    File URL: http://www.sfb504.uni-mannheim.de/publications/dp06-12.pdf
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    Cited by:

    1. Udoka Bernard ALAJEKWU & Michael Chukwumee OBIALOR & Cyprian Okey OKORO, 2017. "Ffect Of Investor Sentiment On Future Returns In The Nigerian Stock Market," Annals of Spiru Haret University, Economic Series, Universitatea Spiru Haret, vol. 17(2), pages 103-126.
    2. Glaser, Markus & Schmitz, Philipp, 2006. "Privatanleger am Optionsscheinmarkt," Papers 06-15, Sonderforschungsbreich 504.

    More about this item

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets

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