Global Integration of Central and Eastern European Financial Markets: The Role of Economic Sentiments

This paper examines the importance of different economic sentiments, e.g. consumer moods, for the Central and Eastern European countries (CEECs) during the transition process. We first analyze the importance of economic confidence with respect to the CEEC's financial markets. Since the integration of formerly strongly regulated markets into global markets can also lead to an increase of the dependence of the CEECs' domestic market performance from global sentiments, we also investigate the relationship between global economic sentiments and domestic income and share prices. Finally, we test whether the impact of global sentiments and stock prices on domestic variables increases proportionally with the degree of integration. For these purposes, we apply a structural cointegrating VAR (CVAR) framework based upon a restricted autoregressive model which allows us to distinguish between the long-run and the short-run dynamics. For the long run we find evidence supporting relationships between sentiments, income and share prices in case of the Czech Republic. Our results for the short run suggest that economic sentiments in general are strongly influenced by share prices and income but also offer some predictive power with respect to the latter. What is more, global sentiments play an important role in particular for the CEECs' share prices and income. The significance of this link increases with economic integration.Cointegration, European integration, financial markets, restricted autoregressive model, sentiments

What Does Stock Ownership Breadth Measure?

Using holdings data on a representative sample of all Shanghai Stock Exchange investors, we show that increases in ownership breadth (the fraction of market participants who own a stock) predict low returns: highest change quintile stocks underperform lowest quintile stocks by 23% per year. Small retail investors drive this result. Retail ownership breadth increases appear to be correlated with overpricing. Among institutional investors, however, the opposite holds: Stocks in the top decile of wealth-weighted institutional breadth change outperform the bottom decile by 8% per year, consistent with prior work that interprets breadth as a measure of short-sales constraints.

An Empirical Study of the Effect of Investor Sentiment on Returns of Different Industries

Studies on investor sentiment are mostly focused on the stock market, but little attention has been paid to the effect of investor sentiment on the return of a specific industry. This paper constructs a proxy variable to examine the relationship between investor sentiment and the return of a specific industry, using the Principle Component Analysis, and finds that investor sentiment is positively correlated with the industry return of the current period and negatively correlated with that of one lag period; we classify investor sentiment as optimistic state and pessimistic state and find that optimistic investor sentiment has a positive effect on stock returns of most industries, while pessimistic investor sentiment has no effect on them; this paper further builds a two-state Markov regime switching model and finds that sentiment has different effect on different industries returns on different states of market

Research on the Influence of Economic Policy Uncertainty on Stock Market Heterogeneity Based on Investor Perspective

For the investors in the Chinese stock market, it is mainly divided into institutional investors and individual investors. It is well known that the number of individual investors, that is, the shareholding ratio, occupies the vast majority of the stock market, so changes in their investment behavior and sentiment will inevitably have a profound impact on the stock market. Although the proportion and size of institutional investors is smaller than that of individual investors, because of the concentration of funds and the concentration of investment behavior, the stock market will also play a non-negligible role. This paper will analyze from the perspective of investors in the stock market, whether the behavior of different investor entities has different degrees and different effects on stock market volatility. Through analysis, it is found that when the proportion of institutional investors increases, the volatility of corporate stocks can be effectively reduced. Volatility in corporate stocks rises when investor sentiment is high. When considering the shareholding ratio of institutional investors and investor sentiment, economic policy uncertainty has a greater impact on corporate stock volatility

The Role of ETFs in Asset Pricing, Mutual Fund Performance, and Market Prediction

This thesis investigates the various roles that the information provided by Exchange Traded Funds (ETFs) could play in asset pricing and market prediction. The empirical analysis contains three parts: The first part extracts information from the US ETFs market and constructs explanatory returns to price the Fama-French portfolios. It aims to provide a parsimonious model (the ETF-factor model) that is able to compete with the five-factor model of Fama and French (2015) and the q-factor model of Hou, Xue, and Zhang (2015). The second part applies the ETF-factor model, along with other conventional pricing models, to measure US equity fund performance. In addition, it attempts to develop relative pricing models as passive benchmarks for measuring US fixed-income fund performance by using information from bond ETFs. The purpose of the third part is to develop a new measure of Chinese investor behaviour that has predictive power for the Chinese market by using the information provided by respective ETFs. The results suggest that ETFs deserve more attention in academic research. In line with conventional financial theory, ETFs’ market dramatically increases the investment universe and securitizes illiquid assets. It comes as no surprise that the risk factors developed from ETFs have explanatory power for a cross-section of stock returns. In addition, a proxy for the bond market can be developed from bond ETFs. This avoids the subjective selection of the bond index as a passive benchmark and can provide a unique pricing model for bonds. Furthermore, research on ETFs contributes to the behavioural finance literature. Investor sentiment is a very important concept in behavioural finance. This thesis finds evidence that the investor behaviour that uses information from ETFs explains and predicts the Chinese market. In addition, it could lead to a profitable high-frequency trading strategy in actual trading. Overall, this thesis researches ETFs from a new perspective. It does not view the ETFs as an investment vehicle but consider ETFs as a type of fundamental asset in the economy. The findings of this thesis contribute to the literature of asset pricing, behavioral finance, and market prediction, and identifies new areas for future research

Empirical Research on the Fama-French Three-Factor Model and a Sentiment-Related Four-Factor Model in the Chinese Blockchain Industry

As one of the most significant components of financial technology (FinTech), blockchain technology arouses the interests of numerous investors in China, and the number of companies engaged in this field rises rapidly. The emotion of investors has an effect on stock returns, which is a hot topic in behavioral finance. Blockchain is an essential part of FinTech, and with the fast development of this technology, investors’ sentiment varies as well. The online information that directly reflects investors’ mood could be utilized for mining and quantifying to construct a sentiment index. For a better understanding of how well some factors adequately explain the return of stocks related to blockchain companies in the Chinese stock market, the Fama-French three-factor model (FFTFM) will be introduced in this paper. Furthermore, sentiment could be a new independent variable to enhance the explanatory power of the FFTFM. A comparison between those two models reveals that the sentiment factor could raise the explanatory power. The results also indicate that the Chinese blockchain industry does not own the size effect and book-to-market effect

Analysis of the relationship between the sentiment of retail investors and the performance of the chinese stock market

Mestrado em FinançasAo contrário dos mercados de ações em países desenvolvidos, os mercados de ações chineses são principalmente composto por investidores de varejo. O comportamento do investimento no varejo é suscetível a emoções, que pode afetar o desempenho dos mercados de ações. Ao estudar a relação entre o dois tipos de mercados de ações, os investidores de varejo podem aumentar sua consciência do risco e investimento racional e a regulamentação dos mercados de capitais chineses também podem ser desenvolvidos de forma mais científica e saudável. Neste artigo, o método de computação afetiva é usado para quantificar o sentimento dos investidores de varejo registrados na Bolsa de Valores de Xangai. Então, a série temporal de sentimento de varejo, o preço de fechamento dos Valores de Xangai Índice Composto e o volume total de negociação da Bolsa de Valores de Xangai são organizado para análise e avaliado por meio de três métodos de análise, o modelo VAR, Correlação de Pearson e TLCC. As conclusões tiradas deste estudo são as seguintes: (i) Não há relação causal entre o sentimento dos investidores de varejo e o fechamento preço do Shanghai Securities Composite Index. (ii) Existe uma relação causal entre o sentimento do investidor de varejo e o volume total de negociação das Ações de Xangai Troca. (Iii) Há uma influência de defasagem mútua e forte correlação entre o sentimento dos investidores de varejo e a taxa de mudança do Shanghai Securities Composite Índice.Unlike stock markets in developed countries, Chinese stock markets are mainly composed of retail investors. Retail investment behavior is susceptible to emotions, which can affect the performance of stock markets. By studying the relationship between the two types of stock markets, retail investors can increase their awareness of risk and rational investment, and the regulation of Chinese capital markets can also be developed more scientifically and healthily. In this paper, the affective computing method is used to quantify the sentiment of retail investors registered on the Shanghai Stock Exchange. Then, the retail sentiment time series, the closing price of the Shanghai Securities Composite Index, and the total trading volume of the Shanghai Stock Exchange are organized for analysis and assessed through three analysis methods, the VAR model, Pearson correlation, and TLCC. The conclusions drawn from this study are as follows: (i) There is no causal relationship between the sentiment of retail investors and the closing price of the Shanghai Securities Composite Index. (ii) There is a causal relationship between retail investor sentiment and the total trading volume of the Shanghai Stock Exchange. (iii) There is a mutual lag influence and strong correlation between the sentiment of retail investors and the changing rate of the Shanghai Securities Composite Index.info:eu-repo/semantics/publishedVersio

Geographic distance and the impact of investor sentiment on stock prices

Based on China’s stock market, this study investigates how firms’ geographic distance from a financial center affects the sensitivity of stock prices to investor sentiment. I find that firms located closer to a financial center are more affected by investor sentiment than firms located far from a financial center. This distance effect holds for different geographic cutting boundaries and after excluding firms located in financial centers. Besides, using China’s High Speed Railway (HSR) as an exogenous shock, I find that HSR connection significantly decreases the effect of geographic distance on the sentiment-driven stock price relationship. In addition, firms with shorter travel times to financial centers are more affected by investor sentiment than firms with longer travel times. Moreover, firms located in provinces with a high stock market participation rate are more affected by investor sentiment than other firms. And Analysts increase the frequency of favorable recommendations for firms that are located closer to financial centers when investor sentiment is high. Furthermore, firms located closer to a financial center do not have higher institutional ownership than other firms. Last but not least, firms located in more economically developed provinces are not more affected by investor sentiment than firms located in less developed provinces. Overall, my findings highlight the importance of geographic distance in explaining the effects of investor sentiment on stock prices