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An empirical investigation of investor sentiment and volatility of realty sector market in India: an application of the DCC–GARCH model

Author

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  • Naga Pillada

    (CHRIST Deemed to Be University
    Platinum Gardenia)

  • Sangeetha Rangasamy

    (CHRIST Deemed to Be University)

Abstract

Understanding how an irrational investors’ sentiment affects the realty market returns, especially during the pandemic, is imperative to take any financial decisions. The effect of investor sentiment on the movement of the realty market leading to market volatility is dynamically represented in a numerical form. The study incorporates daily market data and their implicit indices to construct a sector-specific investor sentiment index by using the principal component analysis method. To analyse the relationship between the variables, a quantitative approach is used by incorporating an econometric model—dynamic conditional correlation–generalized autoregressive conditional heteroskedasticity (DCC–GARCH). The directionality of the relationship between the variables is assessed by the Diebold–Yilmaz method. This study is done to investigate the return deviation in the realty sector due to sentiment impact during the pandemic in the Indian context. The findings indicate the existence of an asymmetric impact of the sentiment, leading to extreme volatility and returns in the realty sector. The results confirmed the presence of bi-directional relationship between asset returns and investor sentiment and quantified the relationship numerically. This study focused on the development, applicability, and validity of a sentiment index pertaining to the Indian realty sector. This study highlights the impact of a qualitative non-fundamental factor like sentiment as a measurable factor in determining the volatility on market returns.

Suggested Citation

  • Naga Pillada & Sangeetha Rangasamy, 2023. "An empirical investigation of investor sentiment and volatility of realty sector market in India: an application of the DCC–GARCH model," SN Business & Economics, Springer, vol. 3(2), pages 1-16, February.
    • Handle: RePEc:spr:snbeco:v:3:y:2023:i:2:d:10.1007_s43546-023-00434-3
    DOI: 10.1007/s43546-023-00434-3
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    More about this item

    Keywords

    DCC–GARCH; Diebold–Yilmaz test; Investor sentiment index; Indian realty stock market; Principal component analysis;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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