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Investor emotional biases and trading volume’s asymmetric response: A non-linear ARDL approach tested in S&P500 stock market

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  • Abderrazak Dhaoui
  • Sami Bacha

Abstract

This paper investigates the dynamic linkages between trading volume and investors sentiments for the S&P500 stock exchange. Two sentiment indicators are considered, the overconfidence and the net optimism-pessimism indicator. Non-linear dynamic approach, namely the asymmetric autoregressive distributed lag (NARDL) model is used to capture the long-term and short-term non-linear connections between the investor sentiment and the stock market liquidity. Empirical findings suggested an asymmetric long-term market liquidity reaction to investor sentiment. In the short-term, the stock market liquidity react rapidly and asymmetrically to changes in overconfidence sentiment, while the optimism and pessimism sentiment has insignificant short-term impact on trading volume.

Suggested Citation

  • Abderrazak Dhaoui & Sami Bacha, 2017. "Investor emotional biases and trading volume’s asymmetric response: A non-linear ARDL approach tested in S&P500 stock market," Cogent Economics & Finance, Taylor & Francis Journals, vol. 5(1), pages 1274225-127, January.
    • Handle: RePEc:taf:oaefxx:v:5:y:2017:i:1:p:1274225
    DOI: 10.1080/23322039.2016.1274225
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