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 S2, 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.

Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:mes:emfitr:v:50:y:2014:i:s2:p:174-188

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DOI: 10.2753/REE1540-496X5002S212

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