Bidirectional Relationship between Investor Sentiment and Excess Returns: New Evidence from the Wavelet Perspective

Martyna Marczak and Thomas Beissinger ()

VfS Annual Conference 2016 (Augsburg): Demographic Change from Verein für Socialpolitik / German Economic Association

Abstract: We propose to use the wavelet concept of the phase angle to determine the lead-lag relationship between investor sentiment and excess returns that are related to the bubble component of stock prices. The wavelet phase angle allows for decoupling short- and long-run relations and is additionally capable of identifying time-varying comovement patterns. Based on the monthly S&P500 index and two alternative monthly US sentiment indicators we find that in the short run (until 3 months) sentiment is leading returns whereas for periods above 3 months the opposite can be observed. Moreover, the initially strong positive relationship becomes less pronounced with increasing time horizon, thereby indicating that the over- or undervaluation in the short run is gradually corrected in the long run.

JEL-codes: C38 G02 G11 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Bidirectional relationship between investor sentiment and excess returns: new evidence from the wavelet perspective (2016)
Working Paper: Bidirectional relationship between investor sentiment and excess returns: New evidence from the wavelet perspective (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc16:145836

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