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Investor sentiment, optimism and excess stock market returns. Evidence from emerging markets

Author

Listed:
  • Karolina Daszynska-Zygadlo
  • Aleksandra Szpulak
  • Adam Szyszka

Abstract

We test the existence of a contemporaneous relationship between sentiment/optimism indexes and returns at the aggregate market level in eight emerging markets, namely: Brazil, China, India, Mexico, Poland, Republic of South Africa, Russia and Turkey. We use sentiment and optimism Thomson Reuters MarketPsych Indexes that are based on scanning media coverage for relevant text reflecting particular moods and opinions. We find that there is a positive relationship between investor sentiment index / investor optimism index and the excess stock market returns in Brazil and China, respectively. We also notice that excess returns are more sensitive to changes in investors moods during periods of negative sentiment/optimism index values in four out of eight researched markets, namely: Brazil, China, India and Mexico. Additionally, this relationship we find positive.

Suggested Citation

  • Karolina Daszynska-Zygadlo & Aleksandra Szpulak & Adam Szyszka, 2014. "Investor sentiment, optimism and excess stock market returns. Evidence from emerging markets," Business and Economic Horizons (BEH), Prague Development Center, vol. 10(4), pages 362-373, November.
    • Handle: RePEc:pdc:jrnbeh:v:10:y:2014:i:4:p:362-373
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    Citations

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    Cited by:

    1. Muhammad Zia Ur Rehman & Zain ul Abidin & Faisal Rizwan & Zaheer Abbas & Sajjad Ahmad Baig, 2017. "How investor sentiments spillover from developed countries to developing countries?," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1309096-130, January.
    2. Zuzana Janková & Petr Dostál, 2019. "Utilization of Artificial Intelligence for Sensitivity Analysis in the Stock Market," Acta Universitatis Agriculturae et Silviculturae Mendelianae Brunensis, Mendel University Press, vol. 67(5), pages 1269-1283.
    3. Roland Füss & Massimo Guidolin & Christian Koeppel, 2019. "Sentiment Risk Premia In The Cross-Section of Global Equity," Working Papers on Finance 1913, University of St. Gallen, School of Finance, revised May 2020.
    4. Brzeszczyński, Janusz & Gajdka, Jerzy & Kutan, Ali M., 2015. "Investor response to public news, sentiment and institutional trading in emerging markets: A review," International Review of Economics & Finance, Elsevier, vol. 40(C), pages 338-352.
    5. Zaremba, Adam & Szyszka, Adam & Long, Huaigang & Zawadka, Dariusz, 2020. "Business sentiment and the cross-section of global equity returns," Pacific-Basin Finance Journal, Elsevier, vol. 61(C).
    6. Roland Fuess & Massimo Guidolin & Christian Koeppel, 2019. "Sentiment Risk Premia in the Cross-Section of Global Equity and Currency Returns," BAFFI CAREFIN Working Papers 19116, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

    More about this item

    Keywords

    Media coverage; sentiment; noise; excess stock returns;
    All these keywords.

    JEL classification:

    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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