Contagious Investor Sentiment: Is the Portuguese Stock Market Influenced by US Market Sentiment?

Mariana Trancoso, Cristiana Cerqueira Leal

Abstract


This paper studies how local and global investor sentiment affects stock market returns. We test local and global investor sentiment proxies to explain Portuguese aggregate stock returns. We find that sentiment negatively influences future market returns. Both global and local sentiment are contrarian predictors of aggregate stock returns: when local or US sentiment is high, future returns are low. The evidence shows a contagious effect of the US investor sentiment on Portuguese stock market returns. Moreover, financial companies are more exposed to investor sentiment than non-financial ones, and investor sentiment influence is stronger during economic recessions.

Keywords


Investor sentiment; contagious sentiment; stock market returns; contrarian predictors; economic cycles.

Full Text:

PDF

References


Baker, M., & Stein, J. C. (2004). Market liquidity as a sentiment indicator. Journal of Financial Markets, 7(3), 271–299.

Baker, M., & Wurgler, J. (2006). Investor Sentiment and the Cross-Section of Stock Returns, LXI(4).

Baker, M., & Wurgler, J. (2007). Investor Sentiment in the Stock Market. Journal of Economic Perspectives, 21(2), 129–151.

Baker, M., Wurgler, J., & Yuan, Y. (2012). Global, local, and contagious investor sentiment. Journal of Financial Economics, 104(2), 272–287.

Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1–27.

Brown, G. W., & Cliff, M. T. (2005). Investor Sentiment and Asset Valuation. The Journal of Business, 78(2), 405–440.

Chen, S.-S. (2011). Lack of consumer confidence and stock returns. Journal of Empirical Finance, 18(2), 225–236.

Chen, S.-S. (2012). Consumer confidence and stock returns over market fluctuations. Quantitative Finance, 12(10), 585–1597.

Chung, S.-L., Hung, C.-H., & Yeh, C.-Y. (2012). When does investor sentiment predict stock returns? Journal of Empirical Finance, 19(2), 217–240.

De Bondt, W., Muradoglu, G., Shefrin, H., & Staikouras, S. K. (2008). Behavioral finance: Quo vadis? Journal of Applied Finance, 18(2), 7–18.

Fernandes, C. M. D. A., Gonçalves, P. M. M. G., & Vieira, E. F. S. (2013). Does Sentiment Matter for Stock Market Returns? Evidence from a Small European Market. Journal of Behavioral Finance, 14(4), 253–267.

Fisher, K. L., & Statman, M. (2000). Investor Sentiment and Stock Returns. Financial Analysts Journal, 56(2), 16–23.

Greenspan, A. (2006). Market crisis “will happen again.”

Ho, J. C., & Hung, C.-H. (2012). Predicting Stock Market Returns and Volatility with Investor Sentiment : Evidence from Eight Developed Countries. Journal of Accounting and Finance, 12(4), 49–66.

Jansen, W. J., & Nahuis, N. J. (2003). The stock market and consumer confidence: European evidence. Economics Letters, 79(1), 89–98.

Lemmon, M., & Portniaguina, E. (2006). Consumer Confidence and Asset Prices: Some Empirical Evidence. Review of Financial Studies, 19(4), 1499–1529.

Qiu, L., & Welch, I. (2006). Investor Sentiment Measures. NBER Working Paper No. 10794

Schmeling, M. (2009). Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408.

Shefrin, H. M. (2009). How Psychological Pitfalls Generated the Global Financial Crisis. SSRN Electronic Journal, (10), 1–42.

Statman, M. (2014). Behavioral finance: Finance with normal people. Borsa Istanbul Review, 14(2), 65–73.

Verma, R., & Soydemir, G. (2006). The Impact of U.S. Individual and Institutional Investor Sentiment on Foreign Stock Markets. Journal of Behavioral Finance, 7(3), 128–144.


Refbacks

  • There are currently no refbacks.


Portuguese Journal of Finance, Management and Accounting

e-ISSN: 2183-3826

DOI: 10.54663/2183-3826

International Networks of Indexing: GOOGLE SCHOLAR, RCAAP, REBID, DRJI