 Investor sentiment and stock volatility: New evidenceXue Gong, Weiguo Zhang, Junbo Wang and Chao Wang International Review of Financial Analysis, 2022, vol. 80, issue C Abstract: This study investigates the predictability of sentiment measure on stock realized volatility. We propose a new investor sentiment index (NISI) based on the partial least squares method. This sentiment index outperforms many existing sentiment indicators in three aspects. First, in-sample result shows that the NISI has greater predictive power relative to the others. Most sentiment indicators show predictability in the non-crisis period only while the NISI is also effective in the crisis period. Furthermore, the NISI exhibits more prominent superiority in longer horizons forecasting. Second, further analysis indicates that the NISI has robust predictability before and after the Chinese stock market turbulence periods while the others not. Importantly, the NISI is still effective significantly after considering leverage effect while most of the others not. Finally, out-of-sample analysis demonstrates that the NISI is more powerful than other sentiment measures. This result is reproducible in different robustness checks. Keywords: Investor sentiment; Leverage effect; Realized volatility prediction; Partial least squares (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:finana:v:80:y:2022:i:c:s1057521922000084 DOI: 10.1016/j.irfa.2022.102028 Access Statistics for this article International Review of Financial Analysis is currently edited by B.M. Lucey More articles in International Review of Financial Analysis from Elsevier |
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