Investor Sentiment, Portfolio Returns, and Macroeconomic Variables

Azilawati Banchit, Sazali Abidin, Sophyafadeth Lim and Fareiny Morni
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Azilawati Banchit: Faculty of Business and Management, Universiti Teknologi MARA, Kota Samarahan 94300, Malaysia
Sazali Abidin: Department of Financial and Business Systems, Lincoln University, Lincoln 7674, New Zealand
Sophyafadeth Lim: Faculty of Agribusiness and Commerce, Lincoln University, Lincoln 7647, New Zealand

JRFM, 2020, vol. 13, issue 11, 1-14

Abstract: Investor sentiment is an important aspect of behavioural finance, which provides explanation of anomalies to the asset’s intrinsic values. Sentiments can easily affect individual investors. Historically, Australia is regarded as rich in resources but poor in capital, and this motivates the paper to further study and compare the effects of investor sentiment on performance returns. Aggregate and cross-sectional effects, as well as predictive regression analysis to forecast the relationships, while controlling for the macroeconomic variables, are used by employing Consumer Confidence Index (CCI) and trade volume as sentiment proxies. Contrary to some studies with aggregate stock markets, it is discovered that in the short term, investor sentiment poses a positive impact with strong predictive power on the forecast of portfolio returns but not so much in the long run, which supports the classical theories of rational investors. In both Australian and New Zealand markets, the sentiment proxies also cannot predict the returns portfolios with dividends in the long/short portfolio and book-to-market ratio long/short portfolio.

Keywords: investor sentiment; return; investment; predictive power; portfolio returns; market efficiency; EMH; anomalies; behavioural finance; performance measures; unit root; macroeconomic variables; consumer confidence Index (CCI); trade volume; dividend per share (DPS); price earning ratio (PE) (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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