An Empirical Study of the Effect of Investor Sentiment on Returns of Different Industries. (17th April 2014)

• Record Type: Journal Article
• Authors: Huang, Chuangxia; Yang, Xin; Yang, Xiaoguang; Sheng, Hu
• Other Names: Wen Fenghua Academic Editor.
• Is Part Of: Mathematical problems in engineering. Volume 2014(2014)
• Publication Date: 2014-04-17
• Subjects: Engineering mathematics -- Periodicals; 510.2462
• DOI: 10.1155/2014/545723
• Languages: English
• ISSNs: 1024-123X

Abstract

Abstract : Studies on investor sentiment are mostly focused on the stock market, but little attention has been paid to the effect of investor sentiment on the return of a specific industry. This paper constructs a proxy variable to examine the relationship between investor sentiment and the return of a specific industry, using the Principle Component Analysis, and finds that investor sentiment is positively correlated with the industry return of the current period and negatively correlated with that of one lag period; we classify investor sentiment as optimistic state and pessimistic state and find that optimistic investor sentiment has a positive effect on stock returns of most industries, while pessimistic investor sentiment has no effect on them; this paper further builds a two-state Markov regime switching model and finds that sentiment has different effect on different industries returns on different states of market.