Abstract
AbstractThis paper applies a sentiment index to check the influence of regional developed countries like Japan and Germany on the sentiments in regional developing countries like Pakistan and Turkey, respectively. The index has been created using a principal component approach with modified proxies. The results indicate that there is a significant influence of developed markets on developing markets also the sentiment index created in this study is good indicator regarding the return pattern of the stock exchange. This study has followed the footsteps of previous studies for methodology and the time period which is used ranged from 29 December 2004 to 31 December 2014. The weekly data has been collected with Wednesday prices so to avoid the white noise, start-of-the week and end-of-the week effect.
Highlights
Baker and Wurgler (2007) developed a sentiment index in which six commonly used proxies for investor sentiment i.e. trading volume based on turnover, the dividend premium, the closed-end fund discount, the number and first-day returns on IPOs, and the equity share in new issues are used and they stated that when the sentiment is low, speculative stocks have greater future returns on average which is inconsistent with classical asset pricing theories
The market proxies such as stock market turnover, money flow index, relative strength index, interbank offer rates, change in the regional market stock index, and performance of the foreign markets have been selected in this study as variables to build an index for sentiments
The research elaborates a significant strength of these variables to be taken as proxies of investors sentiments
Summary
Muhammad Zia Ur Rehman has held positions of Lecturer of Finance at National Textile University Faisalabad, PhD Scholar at International Islamic University Islamabad and Co-PI at the HEC (Higher Education Commission) Research Project. He specializes in corporate behavioral finance, global financial markets, micro structure of financial markets, innovative research epistemology and international Finance. He has several international and national publications having focus of finance and business research
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