Relation Between Taiwan Investor Sentiment and Stock Returns: From the Perspective of Excess Volatility

• Main Authors: CHUANG, YA-CHU, 莊雅筑
• Other Authors: HSIAO, JUNG-LIEH
• Format: Others
• Language: en_US
• Published: 2019
• Online Access: http://ndltd.ncl.edu.tw/handle/67nccw

碩士 === 國立臺北大學 === 國際企業研究所 === 107 === Many classical theories or models are based on the assumption of market efficiency and rational human behavior. However, ignoring the impact of emotion factors on decision making. It is the reason that behavioral finance has drawn researchers’ attention to discuss its influence. We investigate that whether investor sentiment affects the excess returns of portfolios will vary with the magnitude of excess volatility. We use four investor sentiment proxies, which are financing bearing ratio, normalized market turnover, growth in odd-lot trading and six days relative strength index (RSI) to capture individual investor sentiment. In order to obtain pure investor sentiment, we first exclude macroeconomic influence on investor sentiment, we adopt growth in employment, growth in industrial production index (IPI), growth in real private consumption expenditure and recession in Taiwan business cycle then through principal components method we construct Taiwan investor sentiment index. We use variance difference to represent excess volatility and according to variance difference we sort portfolio in decile and compute portfolio excess returns with 30-90 days commercial paper interest rate. We found that investor sentiment has asymmetric effect on portfolio excess returns. In the portfolios with low sentiment and low excess volatility, investor sentiment has greater influence on excess returns, and vice versa. And in low sentiment and low excess volatility portfolios, excess returns have a greater response to investor sentiment.