Investor sentiment and mean-variance relation: Evidence from emerging futures markets

Abstract

We examine the role of news sentiment in determining the mean-variance relation in the emerging futures market. The relation is significantly negative for the Kuala Lumpur Composite Index Futures (KLCIF) in high and low sentiment regimes, while weakly negative in high sentiment and strongly positive in low sentiment regimes for Hang Seng Index Futures (HSIF) and the MSCI Singapore Free Index (SiMSCIF). The negative trade-off is contributed by extremely high sentiment, especially in the KLCIF. A strong negative trade-off during the Asian financial crisis is found for KLCIF. The macroeconomic variables do not show any consistent regime patterns. We do not find any significant impact from U.S. sentiment.