Bidirectional relationship between investor sentiment and excess returns: new evidence from the wavelet perspective

Martyna Marczak and Thomas Beissinger ()

Applied Economics Letters, 2016, vol. 23, issue 18, 1305-1311

Abstract: We propose to use the wavelet concept of the phase angle to determine the lead–lag relationship between investor sentiment and excess returns that are related to the bubble component of stock prices. The wavelet phase angle allows for decoupling short- and long-run relations and is additionally capable of identifying time-varying comovement patterns. Based on the monthly S&P500 index and two alternative monthly US sentiment indicators, we find that in the short run (until 3 months), sentiment is leading returns whereas for periods above 3 months the opposite can be observed. Moreover, the initially strong positive relationship becomes less pronounced with increasing time horizon, thereby indicating that the over- or undervaluation in the short run is gradually corrected in the long run.

Date: 2016
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://hdl.handle.net/10.1080/13504851.2016.1153782 (text/html)
Access to full text is restricted to subscribers.

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:taf:apeclt:v:23:y:2016:i:18:p:1305-1311

Ordering information: This journal article can be ordered from
http://www.tandfonline.com/pricing/journal/RAEL20

DOI: 10.1080/13504851.2016.1153782

Access Statistics for this article

Applied Economics Letters is currently edited by Anita Phillips

More articles in Applied Economics Letters from Taylor & Francis Journals
Bibliographic data for series maintained by Chris Longhurst ().