An empirical investigation of investor sentiment and volatility of realty sector market in India: an application of the DCC–GARCH model

Naga Pillada () and Sangeetha Rangasamy ()
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Naga Pillada: CHRIST Deemed to Be University
Sangeetha Rangasamy: CHRIST Deemed to Be University

SN Business & Economics, 2023, vol. 3, issue 2, 1-16

Abstract: Abstract Understanding how an irrational investors’ sentiment affects the realty market returns, especially during the pandemic, is imperative to take any financial decisions. The effect of investor sentiment on the movement of the realty market leading to market volatility is dynamically represented in a numerical form. The study incorporates daily market data and their implicit indices to construct a sector-specific investor sentiment index by using the principal component analysis method. To analyse the relationship between the variables, a quantitative approach is used by incorporating an econometric model—dynamic conditional correlation–generalized autoregressive conditional heteroskedasticity (DCC–GARCH). The directionality of the relationship between the variables is assessed by the Diebold–Yilmaz method. This study is done to investigate the return deviation in the realty sector due to sentiment impact during the pandemic in the Indian context. The findings indicate the existence of an asymmetric impact of the sentiment, leading to extreme volatility and returns in the realty sector. The results confirmed the presence of bi-directional relationship between asset returns and investor sentiment and quantified the relationship numerically. This study focused on the development, applicability, and validity of a sentiment index pertaining to the Indian realty sector. This study highlights the impact of a qualitative non-fundamental factor like sentiment as a measurable factor in determining the volatility on market returns.

Keywords: DCC–GARCH; Diebold–Yilmaz test; Investor sentiment index; Indian realty stock market; Principal component analysis (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G41 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1007/s43546-023-00434-3

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