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Investor sentiment and the risk–return tradeoff in the Brazilian market

Author

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  • Pedro Piccoli
  • Newton C. A. da Costa
  • Wesley Vieira da Silva
  • June A. W. Cruz

Abstract

This study examines the influence of investor sentiment on the risk–return relationship in the Brazilian stock market from 2002 to 2015. Using the Consumer Confidence Index as a substitute for the level of investor sentiment, we find that the relationship between conditional variance and stocks return is positive (negative) in periods of low (high) sentiment, except for small stocks, which always show a negative relationship between the constructs. The deterioration of the positive relationship between risk and return when sentiment is high is a result of the sharp growth in the number of less sophisticated investors under these circumstances.

Suggested Citation

  • Pedro Piccoli & Newton C. A. da Costa & Wesley Vieira da Silva & June A. W. Cruz, 2018. "Investor sentiment and the risk–return tradeoff in the Brazilian market," Accounting and Finance, Accounting and Finance Association of Australia and New Zealand, vol. 58(S1), pages 599-618, November.
    • Handle: RePEc:bla:acctfi:v:58:y:2018:i:s1:p:599-618
    DOI: 10.1111/acfi.12342
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    2. He, Zhifang, 2022. "Asymmetric impacts of individual investor sentiment on the time-varying risk-return relation in stock market," International Review of Economics & Finance, Elsevier, vol. 78(C), pages 177-194.
    3. Zorio-Grima, Ana & Merello, Paloma, 2020. "Consumer confidence: Causality links with subjective and objective information sources," Technological Forecasting and Social Change, Elsevier, vol. 150(C).
    4. Čižmešija Mirjana & Lukač Zrinka & Novoselec Tomislav, 2019. "Nonlinear optimisation approach to proposing novel Croatian Industrial Confidence Indicator," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 5(2), pages 17-26, December.

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