Interplay between stock trading volume, policy, and investor sentiment: A multifractal approach

Yueling Pan, Lei Hou and Xue Pan

Physica A: Statistical Mechanics and its Applications, 2022, vol. 603, issue C

Abstract: The stock market is a typical complex system which may sensitively react to a wide range of external factors, such as investor sentiment and government policies. While such influence on stock market bares significance for understanding the financial dynamics, the interplay between policy, investor sentiment, and stock trading volume is still unclear. Focusing on three individual stocks during the US–China trade war, this paper explores the interplay between three time series, namely the policy intensity, investor sentiment from a stock-related social networking site, and the trading volume of each stock. Considering the multifractal nature of these time series, the multifractal detrended cross-correlation analysis is applied and the results suggest strong correlations between any pair of the time series. As such, the policy and investor sentiment are found with impact on the stock trading volume while the investor sentiment is also influenced by the policy. A further mediation analysis reveals that up to 36% of the influence from the policy to the stock trading volume is mediated by the investor sentiment. Accordingly, the study uncovers and quantifies the path of the policy’s influence on stock trading volume, thereby provides insights for understanding the dynamics of the complex financial systems.

Keywords: Complex financial system; Multifractal behavior; MF-DCCA; Policy intensity; Investor sentiment (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:603:y:2022:i:c:s0378437122004678

DOI: 10.1016/j.physa.2022.127706

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