Investor Sentiment and Sector Returns

Ahmed Salhin, Mo Sherif and Edward Jones
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Edward Jones: Heriot-Watt University

No 1602, CFI Discussion Papers from Centre for Finance and Investment, Heriot Watt University

Abstract: This paper examines the relationship between investor sentiment and UK stock returns at economy and industry level. Using consumer and business conï¬ dence indicators provided by the European Commission, we provide novel evidence on whether sector-speciï¬ c sentiment differs from the aggregate market sentiment in predicting stock returns for ï¬ ve discrete sector groupings. Using monthly data for the period January 1985 to December 2014, our results indicate that investor sentiment signiï¬ cantly influences stock market returns at economy level and for some industry groups. We ï¬ nd that the overall sentiment-return relationship is dominated by sentiment associated with Manufacturing ï¬ rms. Importantly, parameter estimates for the sector groupings are not consistent, suggesting that the relationship differs across sectors and ï¬ ndings are sensitive to industry characteristics.

Keywords: Investor Sentiment; Business Conï¬ dence; Granger-Causality; UK Sectors (search for similar items in EconPapers)
JEL-codes: G02 G12 G17 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-ger
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Persistent link: https://EconPapers.repec.org/RePEc:hwe:cfidps:1602

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