Differences between NZ and U.S. individual investor sentiment: More noise or more information?

Jędrzej Białkowski (), Moritz Wagner () and Xiaopeng Wei
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Jędrzej Białkowski: University of Canterbury, https://www.canterbury.ac.nz

Working Papers in Economics from University of Canterbury, Department of Economics and Finance

Abstract: In this study, we introduce a newly created sentiment index of individual investors in NZ constructed similar to the well-known sentiment index provided by the American Association of Individual Investors (AAII) in the U.S. This unique setup allows us to compare different aspects of investors’ behaviour in both countries. We show that NZ market participants are less confident about the directional movement of the stock market, their expectations are more volatile and their distributions have fatter tails. By contrast, both bullish and bearish sentiment is more persistent among U.S. investors. Furthermore, our analysis of return predictability reveals that both groups of investors behave as noise traders. However, the results for NZ investors are stronger. Overall, our findings call for better financial education, particularly in the area of equity investing.

Keywords: AAII sentiment index; Information traders; Noise traders; NZ sentiment index; Return predictability (search for similar items in EconPapers)
JEL-codes: G11 G14 G18 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2023-08-01
New Economics Papers: this item is included in nep-fle, nep-fmk and nep-ifn
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Persistent link: https://EconPapers.repec.org/RePEc:cbt:econwp:23/11

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