Abstract
This article examines how investor sentiment affects stock returns on Vietnam's stock market. Investor sentiment index is measured by a relative strength index (RSI) of 57 companies listed on the Ho Chi Minh Stock Exchange from January 1, 2015 to July 31, 2020. Control variables include investors' stock trading behavior, firm size, and cash flow per share. Using Fama-MacBeth regression estimation and general least square estimation (GSL) on a daily basis, both methods find the sentiment of high investors producing higher stock returns, on the contrary, the sentiment of low investors erodes stock returns. Different from the results of Brown and Cliff (2004) [Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of empirical finance, 11(1), 1-27], the article found that the investor sentiment factor plays the most important role in explaining the return of the stock market compared to the rest of the factors.
Highlights
The efficient market theory states that investors cannot use publicly available information such as historical stock prices or trading volume to find excess return on the stock market (Fama, 1970)
Five estimation models to test the impact of investor sentiment on stock returns on Vietnam's stock market are set up, these models are based on Eq (4)
This has been one of the first studies to measure investor sentiment in Vietnam's stock market based on relative strength index (RSI)
Summary
The efficient market theory states that investors cannot use publicly available information such as historical stock prices or trading volume to find excess return on the stock market (Fama, 1970). Behavioral finance studies have provided empirical evidence that investor sentiment and their behaviors can significantly affect asset returns and create excess return. Studies show that behaviors that affect stock returns are related to investor sentiment. The results from investors' sentiment studies to the profits on the stock market are inconsistent. While Brown and Cliff (2004) argued that the impact of investor sentiment on stock returns is negligible, on the contrary, Ryu et al (2017) discovered that the influence of investor sentiment was very significant and cannot be ignored. Studies measuring investor sentiment in the stock market today mainly focus on major stock markets such as the US, UK (Hudson & Green, 2015), Hong Kong (Chen, Chong & Duan, 2010), South Korea (Ryu et al, 2017). The number of studies on investor sentiment based on technical analysis indicators to stock returns on emerging
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