ABSTRACT
This article examines how investor sentiment and trading behaviour affect asset returns. By analysing the unique stock trading dataset of the Korean market, we find that high investor sentiment induces higher stock market returns. We also find that institutional (individual) trades are positively (negatively) associated with stock returns, suggesting the information superiority (inferiority) of institutional (individual) investors. Investor sentiment generally plays a more important role in explaining stock market returns than investor trading behaviour.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1 While Yang and Zhou (Citation2015) construct similar proxies only for the overall stock market index, we calculate the proxies for individual stock level and derive the sentiment index reflecting investor perspective on each individual company. Thus, our measure is superior at capturing firm-level characteristics.
2 explains the calculation of the four sentiment variables on a daily basis. The variable definitions should be changed slightly for the monthly estimation. For example, the monthly variables are calculated at the last trading day of each month, and the number of trading days per month is considered.
3 The risk-free rates are calculated using the CD91 (91-day certificate of deposit) rates.