Does sentiment matter for stock returns? Evidence from Indian stock market using wavelet approach

Abstract

This article examines the relationship between investor sentiment and stock returns using the data from Indian stock market. We investigate the relationship using a broad set of implicit sentiment proxies and value-weighted market indices. The wavelet method has been used to decompose sentiment variables and stock returns into different timescale frequencies. We find a strong effect of sentiment on return both in the short-and long-run by employing decomposed returns and sentiment proxies at different time-scale frequencies, The study lends support to the fact that whether investors are short-term or long-term traders, their investments activities cannot be delinked from sentiment.