Investor sentiment, stock returns, and the dependence between their quantiles: evidence from G7 countries

Abstract

ABSTRACT This study uses a quantile-on-quantile regression framework to establish a link between investor sentiment proxied by market turnover and stock returns in G7 countries. The QQ analysis results reveal that the impact of investor sentiment on future stock returns is asymmetric and varies across quantiles of stock returns and sentiment. Overall, a significantly negative relationship is observed for all G7 countries. Interestingly, when the market is very bullish, and investors are pessimistic, investor sentiment positively influences future returns, except for Japan.