Role of investor sentiment in financial markets: an explanation by behavioural finance approach
by Nizar Raissi; Sahbi Missaoui
International Journal of Accounting and Finance (IJAF), Vol. 5, No. 4, 2015

Abstract: The present paper has two objectives. The first is to analyse the correlation between investor sentiment and stock returns. The second is to explain the relationship between the financial market liquidity and the behaviour of its actors. From this perspective, we demonstrate that the investor sentiment is an important factor in generation of the stock performance based on the criterion of market capitalisation class shares, and then the investor sentiment is a combination of other indicators, including liquidity indicators of the financial market. Consequently, there exists a relationship between investor sentiment and stock returns. Thus, to verify this relationship, we studied a sample of 80 French industrial companies during a period of 58 months from January 2005 to October 2009. We have obtained the first result that investor sentiment is an explanatory variable only for small-caps returns. For the second result, we confirmed that the liquidity of the financial market deserves the role of sentiment measure. For the third result, we have proved that there is a significant correlation between investor sentiment and only the stock returns of small-cap. Finally, for the fourth result, we have validated the hypothesis showing that market liquidity can predict the psychological situation of investors.

Online publication date: Wed, 27-Apr-2016

The full text of this article is only available to individual subscribers or to users at subscribing institutions.

 
Existing subscribers:
Go to Inderscience Online Journals to access the Full Text of this article.

Pay per view:
If you are not a subscriber and you just want to read the full contents of this article, buy online access here.

Complimentary Subscribers, Editors or Members of the Editorial Board of the International Journal of Accounting and Finance (IJAF):
Login with your Inderscience username and password:

Username:        Password:          Forgotten your password?

Want to subscribe?
A subscription gives you complete access to all articles in the current issue, as well as to all articles in the previous three years (where applicable). See our Orders page to subscribe.

If you still need assistance, please email subs@inderscience.com