The impact of investor sentiment on index performance - Kawther Trabelsi - Bog

This research work it is a primary objective of is to examine the effect of US individual investor sentiment on US financial stock market returns and volatility. This study applies survey data using the EGARCH-M model in our sample on the SP500 stock index between the periods 1970 to 2018 to the sentiment of individual investors in the United States. Our results are first, US market fundamentals are regressed on investor sentiment to capture the effect of macroeconomic risk factors on investor sentiment. Next, we study the effect of unexpected movements in US investor sentiment on the performance and volatility of sector-specific stocks. The results reveal that a one-time increase in the standard deviation of the rational component of US individual investor sentiment has a significant positive effect on all stock returns of the US industries examined.