Investor Sentiment Influence on the Risk-Reward Relation in the Taiwan Stock Market

Jean Yu, Hung-Hsi Huang and Shu-Wei Hsu

Emerging Markets Finance and Trade, 2014, vol. 50, issue 2S, 174-188

Abstract: We examine the influence of investor sentiment on the risk-reward relationship in the Taiwan stock market. Regression results show that the risk-reward relationship is weakly positive (significantly negative) under low (high) levels of investor sentiment. Granger causality tests indicate unidirectional, not bidirectional, causal relationships. Moreover, the negative return-variance relationship is more strongly characteristic of the over-the-counter index than of the Taiwan Stock Exchange weighted index, indicating that an unreasonable risk-reward trade-off may be more prevalent in emerging markets than in mature markets. Finally, the Wald test demonstrates that industry effects on the risk-reward relationship may be negligible.

Keywords: Granger causality test; investor sentiment; risk-reward relation; stock return; volatility (search for similar items in EconPapers)
Date: 2014
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