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Does Fear has Stronger Impact than Confidence on Stock Returns? The Case of Asia-Pacific Developed Markets

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  • Ngoc Bao Vuong
  • Yoshihisa Suzuki

Abstract

Employing data from Australia, Hong Kong, and Japan over the period between January 2004 to December 2017, this study investigates the relationship between investor sentiment and stock returns. We analyze two reversed sentiment indicators, namely Consumer Confidence Index (CCI) and Volatility Index (VIX), in two conversing situations: low and high sentiment. The empirical evidence suggests that sentiment has a significant link with concurrent returns, but its influence seems to wipe out quickly as the little to no return predictability is detected. More importantly, we find that “investor fear gauge†(VIX) generates a more significant contemporaneous effect on market returns than investor confidence. The impact on future returns, on the contrary, is inconclusive since low CCI and VIX dominate the opposite ones most of the time. JEL Codes - G10; G15; G40

Suggested Citation

  • Ngoc Bao Vuong & Yoshihisa Suzuki, 2020. "Does Fear has Stronger Impact than Confidence on Stock Returns? The Case of Asia-Pacific Developed Markets," Scientific Annals of Economics and Business (continues Analele Stiintifice), Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, vol. 67(2), pages 157-175, June.
    • Handle: RePEc:aic:saebjn:v:67:y:2020:i:2:p:157-175:n:9
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    investor sentiment; stock returns; consumer confidence index; volatility index;
    All these keywords.

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G40 - Financial Economics - - Behavioral Finance - - - General

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