Investor sentiment tests have recently been one of the fields of behavioural finance that is more commonly studied. Without having been thoroughly checked, a variety of measures have been developed in the literature and thus leave in doubt what measure should be used for methodological exploration. The aim of this research is to analyse the relative performance of a variety of common stock return prediction measures and to assess the relative effectiveness of a hybrid approach. We are creating a new measure of sentiment that incorporates direct and indirect sentiment measures through a panel of investor sentiment measures. The psychological component of individuals (optimism, pessimism and neutrality) is taken into account by surveys in conjunction with their socio-economic characteristics. Our findings show that our composite sentiment index affects stock returns that are difficult to value and difficult to arbitrate, consistent with noise trader model predictions. Finally, we find that our composite index has a greater predictive capacity than the literature ‘s largely used alternative sentiment indicators.
Dr. Francisca Beer
California State University of San Bernardino, USA.
Dr. Mohamed Zouaoui
University of Franche-Comté and LEG-UMR, France.
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