Do Investors' Sentiment Dynamics affect Stock Returns? Evidence from the US Economy

This paper contributes to the understanding of the non-linear causal linkage between investors’ sentiment dynamics and stock returns for the US economy. Employing the sentiment index developed by Baker and Wurgler [Baker, M., Wurgler, J., 2007. Investor sentiment in the stock market. Journal of Economic Perspectives 21 (2), 129–151] and within a non-linear causality framework, we found that sentiment embodies significant predictive power with respect to stock returns.

[1]  Cees Diks,et al.  A Note on the Hiemstra-Jones Test for Granger Non-causality , 2005 .

[2]  Ziran Li,et al.  Testing for Linear and Nonlinear Granger Causality between the Carbon Spot and Futures Prices , 2011, 2011 Fourth International Conference on Business Intelligence and Financial Engineering.

[3]  Craig Hiemstra,et al.  Testing for Linear and Nonlinear Granger Causality in the Stock Price-Volume Relation , 1994 .

[4]  J. Stock,et al.  Efficient Tests for an Autoregressive Unit Root , 1992 .

[5]  Maik Schmeling.  Investor sentiment and stock returns: Some international evidence , 2009 .

[6]  Remco C. J. Zwinkels,et al.  A new measurement method of investor overconfidence , 2012 .

[7]  Michael T. Cliff,et al.  Investor Sentiment and the Near-Term Stock Market , 2001 .

[8]  Cees Diks,et al.  A new statistic and practical guidelines for nonparametric Granger causality testing , 2006 .

[9]  T. Lux.  Sentiment dynamics and stock returns: the case of the German stock market , 2011 .

[10]  N. Barberis,et al.  A model of investor sentiment 1 , 1998 .

[11]  W. Fuller,et al.  Distribution of the Estimators for Autoregressive Time Series with a Unit Root , 1979 .

[12]  Thomas J. Rothenberg,et al.  Efficient Tests for an Autoregressive Unit Root , 1996 .

[13]  Bill Francis,et al.  Is There a Symmetric Nonlinear Causal Relationship between Large and Small Firms , 2010 .

[14]  Lei Gao,et al.  Chinese institutional investors’ sentiment , 2008 .

[15]  Bayram Veli Salur.  Investor sentiment in the stock market , 2013 .

[16]  P. Phillips,et al.  Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? , 1992 .

[17]  Jörg Breitung,et al.  Nonparametric tests for unit roots and cointegration , 2002 .