The Impact of Sentiment on Realized Higher-Order Moments in the S&P 500: Evidence from the Fear and Greed Index

Richard Mawulawoe Ahadzie (), Peterson Owusu Junior and John Kingsley Woode
Additional contact information
Richard Mawulawoe Ahadzie: Tasmanian School of Business and Economics, University of Tasmania, Private Bag 84, Hobart, TAS 7001, Australia
John Kingsley Woode: Department of Finance, School of Business, University of Cape Coast, Cape Coast, Ghana

JRFM, 2024, vol. 18, issue 1, 1-34

Abstract: This study empirically investigates the relationship between realized higher-order moments and the Fear and Greed Index as a measure of sentiments. We estimate daily realized moments using 5 min return data of the S&P 500 index from 3 January 2011 to 18 September 2020. We find that the Fear and Greed Index significantly impacts realized volatility during periods of extreme fear. Additionally, various sentiment indicators influence realized skewness and realized kurtosis. The VIX index significantly reduces realized skewness across all sentiment levels. Bearish and bullish sentiments have a significant negative relationship with negative realized skewness during periods of extreme fear and extreme greed. However, the Fear and Greed Index and bearish and bullish sentiments have a significant positive relationship with positive realized skewness. During extreme fear, the Fear and Greed Index and bearish and bullish sentiments have a significant negative relationship with realized kurtosis. These results remain consistent when considering the non-linear characteristics of the Fear and Greed Index during periods of extreme fear and extreme greed. These findings highlight the relevance of understanding sentiment in financial risk management and its significant relationship with the asymmetric and extremity characteristics of asset returns.

Keywords: Fear and Greed Index; VIX index; realized higher-order moments; market sentiment; asset return distribution; behavioral finance concepts (search for similar items in EconPapers)
JEL-codes: C E F2 F3 G (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.mdpi.com/1911-8074/18/1/2/pdf (application/pdf)
https://www.mdpi.com/1911-8074/18/1/2/ (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:gam:jjrfmx:v:18:y:2024:i:1:p:2-:d:1551910

Access Statistics for this article

JRFM is currently edited by Ms. Chelthy Cheng

More articles in JRFM from MDPI
Bibliographic data for series maintained by MDPI Indexing Manager ().