Abstract
In this study, we test whether investor sentiment drives individual investor trading. We follow recent behavioral finance literature and construct a daily investor sentiment index — FEARS — for the German market based on search volumes of negative terms in Google. We match FEARS with a dataset of individual investor trades from a large German discount brokerage for the period July 2005 through June 2015. We find that when FEARS is high (sentiment is low), individual investors trade more; conditional on trading, when FEARS is high, investors trade out of risky assets. Effects are particularly strong for less sophisticated investors.
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