The relationship between market sentiment index and stock rates of return: a panel data analysis

• Autor(a) principal: Yoshinaga,Claudia Emiko
• Data de Publicação: 2012
• Outros Autores: Castro Junior,Francisco Henrique Figueiredo de
• Tipo de documento: Artigo
• Idioma: eng
• Título da fonte: BAR - Brazilian Administration Review
• Texto Completo: http://old.scielo.br/scielo.php?script=sci_arttext&pid=S1807-76922012000200005
• topic: sentiment index; pricing model; GMM panel data

This article analyzes the relationship between market sentiment and future stock rates of return. We used a methodology based on principal component analysis to create a sentiment index for the Brazilian market with data from 1999 to 2008. The sample consisted of companies listed on BM&F BOVESPA which were grouped into quintiles, each representing a portfolio, according to the magnitude of the following characteristics: market value, total annualized risk and listing time on BM&F BOVESPA. Next, we calculated the average return of each portfolio for every quarter. The data for the first and last quintiles were analyzed via two-factor ANOVA, using sentiment index of the previous period (positive or negative) as the main factor and each characteristic as controlling factors. Finally, the sentiment index was included in a panel data pricing model. The results indicate a significant and negative relationship between the market sentiment index and the future rates of return. These findings suggest the existence of a reversion pattern in stock returns, meaning that after a positive sentiment period, the impact on subsequent stock returns is negative, and vice-versa.