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This study investigates the impact of investor sentiment on stock returns and trading volume, challenging the efficient market hypothesis. Using CRSP data from May 1998 to March 2022, methods like Fama-MacBeth and quantile regression were applied to analyze sentiment indicators such as the VIX, AAII Investor Sentiment Survey, Consumer Confidence, and Baker-Wurgler Index. The findings reveal that investor sentiment significantly influences stock returns and trading volume, especially during uncertain times. Sentiment also affects financial metrics like SMB, HML, RMW, and CMA uniquely. This research provides new insights and practical implications for investors and analysts, emphasizing the importance of considering sentiment in investment strategies to better anticipate market movements and manage risks

Author

Listed:
  • Szymon Lis

    (University of Warsaw, Faculty of Economic Sciences, Department of Quantitative Finance)

  • Robert Slepaczuk

    (University of Warsaw, Faculty of Economic Sciences, Department of Quantitative Finance)

  • Paweł Sakowski

    (University of Warsaw, Faculty of Economic Sciences, Department of Quantitative Finance)

Abstract

No abstract is available for this item.

Suggested Citation

  • Szymon Lis & Robert Slepaczuk & Paweł Sakowski, 2024. "This study investigates the impact of investor sentiment on stock returns and trading volume, challenging the efficient market hypothesis. Using CRSP data from May 1998 to March 2022, methods like Fam," Working Papers 2024-18, Faculty of Economic Sciences, University of Warsaw.
    • Handle: RePEc:war:wpaper:2024-18
    as

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    File URL: https://www.wne.uw.edu.pl/download_file/5004/0
    File Function: First version, 2024
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    market sentiment; factor models; stock returns; EMH; Fama-MacBeth model; quantile regression; Baker-Wurgler index; VIX index;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C14 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Semiparametric and Nonparametric Methods: General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection

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