Asymmetric Investor Sentiment and Broker Sentiment Contagionin the U.S. Equity Market

Purpose The purpose of this paper is to propose a novel and new direct measurement of small investor sentiment in the equity market. The sentiment is based on the individual investors’ internet search activity. Design/methodology/approach The author measures unexpected changes in the small investor sentiment with AR (1) process, where the residuals capture the unexpected changes in small investor sentiment. The author employs vector autoregressive, Granger causality and linear regression models to estimate the association between the unexpected changes in small investor sentiment and future equity market returns. Findings An unexpected increase in the search popularity of the term bear market is negatively associated with the following week’s equity market returns. An unexpected increase in the spread (the difference in popularities between a bull market and a bear market) is positively associated with the following week’s equity market returns. The author finds that these effects are stronger for small-sized companies. Originality/value By author’s knowledge, the paper is the first that measures the small investor sentiment that is based on the internet search activity for keywords used in the American Association of Individual Investor’s (AAII) survey questions. The paper proposes an alternative small investor sentiment measure that captures the changes in small investor sentiment in more timely fashion than the AAII survey.

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Predictability Bias in the U.S. Equity Market

Financial Analysts Journal ◽

10.2469/faj.v51.n2.1877 ◽

1995 ◽

Vol 51 (2) ◽

pp. 12-28 ◽

Cited By ~ 28

Author(s):

Lex C. Huberts ◽

Russell J. Fuller

Keyword(s):

Equity Market ◽

The U.S

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The Variation in Variance Risk Premium and its Predictive Power: Evidence from Option Market Sentiments

Quarterly Journal of Finance ◽

10.1142/s201013922050010x ◽

2020 ◽

Vol 10 (03) ◽

pp. 2050010

Author(s):

Y. Peter Chung ◽

Sun-Joong Yoon

Keyword(s):

Risk Premium ◽

Predictive Power ◽

Investor Sentiment ◽

Individual Investors ◽

Trading Behavior ◽

Variance Risk Premium ◽

The Poor ◽

Variance Risk ◽

Return Dynamics ◽

The U.S

We show that the highly volatile variance risk premium (VRP) can be theoretically and empirically reconciled with investor sentiment captured by temporary variation in risk aversion. In an effort to understand the poor predictive power of the VRP in non-U.S. markets, we propose a new investor sentiment index, the Variance Sentiment Index(VSI), obtained from the trading behavior of individual investors. We show that the VSI predicts local return dynamics, in a similar way to what the VRP does in the U.S. market. Moreover, the VSI does not lose its predictive power even in the presence of the global VRP.

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Global Political Uncertainty and Asset Prices

Review of Financial Studies ◽

10.1093/rfs/hhz087 ◽

2019 ◽

Vol 33 (4) ◽

pp. 1737-1780 ◽

Cited By ~ 12

Author(s):

Jonathan Brogaard ◽

Lili Dai ◽

Phong T H Ngo ◽

Bohui Zhang

Keyword(s):

Equity Market ◽

Equity Returns ◽

Political Uncertainty ◽

Election Cycle ◽

Equity Prices ◽

Sovereign Bond ◽

Oxford University ◽

Bond Returns ◽

Published Paper ◽

The U.S

Abstract We show that global political uncertainty, measured by the U.S. election cycle, on average, leads to a fall in equity returns in fifty non-U.S. countries. At the same time, market volatilities rise, local currencies depreciate, and sovereign bond returns increase. The effect of global political uncertainty on equity prices increases with the level of uncertainty in U.S. election outcomes and a country’s equity market exposure to foreign investors, but does not vary with the country’s international trade exposure. These findings suggest that global political uncertainty increases investors’ aggregate risk aversion, leading to a flight to safety.(JEL F30, F36, G12, G15, G18) Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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