Abstract
AbstractThis paper investigates the dynamic linkages between trading volume and investors sentiments for the S&P500 stock exchange. Two sentiment indicators are considered, the overconfidence and the net optimism-pessimism indicator. Non-linear dynamic approach, namely the asymmetric autoregressive distributed lag (NARDL) model is used to capture the long-term and short-term non-linear connections between the investor sentiment and the stock market liquidity. Empirical findings suggested an asymmetric long-term market liquidity reaction to investor sentiment. In the short-term, the stock market liquidity react rapidly and asymmetrically to changes in overconfidence sentiment, while the optimism and pessimism sentiment has insignificant short-term impact on trading volume.
Highlights
The change of return over the time provides information about the influences of the investors’ expectation and their beliefs
We retain for this study the over confidence indicators and we propose a new specification to the optimism-pessimism sentiment based on the results of the Association of Individual Investors webpages (AAII) survey of the S&P500 investors sentiments
Before investigating the dynamic linkages between the trading volume from one hand and the S&P500 index price and investor sentiment from the other hand, we have to test for the unit root in each series
Summary
The change of return over the time (days, weeks, months or any other unit of time) provides information about the influences of the investors’ expectation and their beliefs. We use the dynamic Non-linear Autoregressive Distributed Lag (NARDL) to examine the dynamic asymmetric relation between the stock market liquidity and the investor sentiment indicators This method seems suitable to oversee the asymmetry in long and short-term response of the dependent variable to positive and negative regressor changes. These techniques suppose linear linkages between independent and dependent variables and supervise the specific characteristics in the relations such as long and short run causality (cointegration approach), volatility (ARCH and GARCH), Error correction (VECM) Financial series, such as stock price and trading volume, are characterized by their specific instability and their high sensitivity to increases and decreases in the underlying assets character. We retain for this study the over (under) confidence indicators and we propose a new specification to the optimism-pessimism sentiment based on the results of the AAII survey of the S&P500 investors sentiments
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