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Investor Sentiment, Portfolio Returns, and Macroeconomic Variables

Author

Listed:
  • Azilawati Banchit

    (Faculty of Business and Management, Universiti Teknologi MARA, Kota Samarahan 94300, Malaysia)

  • Sazali Abidin

    (Department of Financial and Business Systems, Lincoln University, Lincoln 7674, New Zealand)

  • Sophyafadeth Lim

    (Faculty of Agribusiness and Commerce, Lincoln University, Lincoln 7647, New Zealand)

  • Fareiny Morni

    (Faculty of Business and Management, Universiti Teknologi MARA, Kota Samarahan 94300, Malaysia)

Abstract

Investor sentiment is an important aspect of behavioural finance, which provides explanation of anomalies to the asset’s intrinsic values. Sentiments can easily affect individual investors. Historically, Australia is regarded as rich in resources but poor in capital, and this motivates the paper to further study and compare the effects of investor sentiment on performance returns. Aggregate and cross-sectional effects, as well as predictive regression analysis to forecast the relationships, while controlling for the macroeconomic variables, are used by employing Consumer Confidence Index (CCI) and trade volume as sentiment proxies. Contrary to some studies with aggregate stock markets, it is discovered that in the short term, investor sentiment poses a positive impact with strong predictive power on the forecast of portfolio returns but not so much in the long run, which supports the classical theories of rational investors. In both Australian and New Zealand markets, the sentiment proxies also cannot predict the returns portfolios with dividends in the long/short portfolio and book-to-market ratio long/short portfolio.

Suggested Citation

  • Azilawati Banchit & Sazali Abidin & Sophyafadeth Lim & Fareiny Morni, 2020. "Investor Sentiment, Portfolio Returns, and Macroeconomic Variables," JRFM, MDPI, vol. 13(11), pages 1-14, October.
    • Handle: RePEc:gam:jjrfmx:v:13:y:2020:i:11:p:259-:d:436968
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    References listed on IDEAS

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    2. Tihana Škrinjarić & Branka Marasović & Boško Šego, 2021. "Does the Croatian Stock Market Have Seasonal Affective Disorder?," JRFM, MDPI, vol. 14(2), pages 1-16, February.

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