Investigating the effect of investor sentiment on stock return sensitivity to fundamental factors: case of JSE listed companies

Figures & data

Table 1. Descriptive statistics of the variables used in the study.

Descriptive statistics
	N	Minimum	Maximum	Mean	Std. Deviation
RETU	1386	−.999	11.527	.296	1.257
EARY	1386	−.019	.122	.004	.0105
CPROFI	1386	−.032	.033	.0001	.005
CAPI	1386	−.019	.056	.0015	.007
ACCRQ	1386	−.800	−.040	−.462	.107
COMPAQ	1386	−1.170	.770	.015	.204
INS (CCI)	1386	−19.250	21.00	−.439	10.191
SIZE	1386	7.974	25.367	19.107	2.861
Leverage	1386	.003	1.206	.473	.209
MBR	1386	2.4E−^4	1.293	.032	.119
CPI	1386	−.007	.153	.066	.033
GDPG	1386	−1.000	.056	−.009	.177
IPG	1386	67.300	104.6	89.733	10.980
Valid N (listwise)	1386

This table reports the descriptive statistics for the study variables. Appendix 2 provides a description of variables. The sample consists of 1386 observations from 1990 to 2022.

Source: Authors’ computation.

Figure 1. Annual investor sentiment proxied by CCI index.

Source: Authors’ computation.

Table 2. Correlation results.

	RETU	EARY	CPROFI	CAPI	ACCRQ	COMPAQ	INS
RETU
Pearson Correlation	1	.112**	.115**	.096**	.008	−.012	−.089**
Sig. (2-tailed)		<.001	<.001	<.001	.773	.650	<.001
EARY
Pearson Correlation	.112**	1	.220**	.521**	.081**	.130**	−.035
Sig. (2-tailed)	<.001		<.001	<.001	.002	<.001	.193
CPROFI
Pearson Correlation	.115**	.220**	1	.169**	.111**	.063*	−.028
Sig. (2-tailed)	<.001	<.001		<.001	<.001	.019	.302
CAPI
Pearson Correlation	.096**	.521**	.169**	1	.073**	.468**	−.009
Sig. (2-tailed)	<.001	<.001	<.001		.006	<.001	.742
ACCRQ
Pearson Correlation	.008	.081**	.111**	.073**	1	−.0002	.074**
Sig. (2-tailed)	.773	.002	<.001	.006		.930	.006
COMPAQ
Pearson Correlation	−.012	.130**	.063*	.468**	−.002	1	.018
Sig. (2-tailed)	.650	<.001	.019	<.001	.930		.496
INS
Pearson Correlation	−.089**	−.035	−.028	−.009	.074**	.018	1
Sig. (2-tailed)	<.001	.193	.302	.742	.006	.496

This table reports the Pearson correlation matrix of the main study variables. Appendix 1 provides a description of the variables. The sample consist of 1386 observations from 1990 to 2022.

Source: Authors’ computation.

Table 3. Regression results: stock return and accounting variables.

Result Equation (4)(4) $${\mathit{\text{RETU}}}_{i,t+1\mathrm{ }}={\beta }_0+{\beta }_1{\mathit{\text{EARY}}}_{i,t}+{\beta }_2{\mathit{\text{CPROFI}}}_{\mathrm{i},t\mathrm{ }}+{\beta }_3{\mathit{\text{CAPI}}}_{i,t}+{\beta }_4{{\mathit{\text{CONV}}}_{\mathit{\text{it}}}\mathrm{ }\mu }_{i,t+1}$$(4)
	Column 1	Column 2
	Coefficient	Coefficient
Intercept	0.751***	0.974***
	(0.0086)	(0.0683)
EARY	2.105*	0.144
	(1.2449)	(1.336)
CPROFI	6.139***	6.861***
	(2.866)	(2.858)
CAPI	2.112	1.265
	(2.1157)	(2.126)
Size		−0.013***
		(0.0034)
Leverage		0.058
		(0.0391)
MBR		0.162
		(0.1278)
N	1386	1386

This table reports the results of estimating Eq. (4)(4) $${\mathit{\text{RETU}}}_{i,t+1\mathrm{ }}={\beta }_0+{\beta }_1{\mathit{\text{EARY}}}_{i,t}+{\beta }_2{\mathit{\text{CPROFI}}}_{\mathrm{i},t\mathrm{ }}+{\beta }_3{\mathit{\text{CAPI}}}_{i,t}+{\beta }_4{{\mathit{\text{CONV}}}_{\mathit{\text{it}}}\mathrm{ }\mu }_{i,t+1}$$(4) .

***, ** and * denote significance at 1, 5 and 10%, respectively.

Below each estimated coefficient is the standard error in parentheses. Appendix 2 provides a description of the variables.

Source: Authors’ computation.

Table 4. Regression results: Stock return and measures of earnings quality (ACCRQ and COMPAQ).

	Column 1 (MEQ = ACCRQ)		Column 2 (MEQ = COMPAQ)
	Column 1.1	Column 1.2	Column 2.1	Column 2.2
	Coefficient	Coefficient	Coefficient	Coefficient
Intercept	0.774***	0.897***	0.763***	1.111***
	(0.0467)	(0.2800)	(0.0086)	(0.151)
MEQ	0.023	0.024	−0.019	−0.081
	(0.1016)	(0.4499)	(0.0314)	(0.103)
Size		−0.038***		−0.014***
		(0.0118)		(0.004)
Leverage		0.210		0.005
		(0.1519)		(0.037)
MBR		0.746*		0.191***
		(0.3963)		(0.073)
N	1386	1386	1386	1386

This table reports the results of estimating Eq. (5)(5) $${\mathit{\text{RETU}}}_{i,t+1}={\beta }_0+{{\beta }_1\mathit{\text{MEQ}}}_{i,t}+{{\beta }_2\mathit{\text{CONV}}}_{i,t}+{\mu }_{i,t+1}$$(5) .

***, ** and * denote significance at 1, 5 and 10%, respectively.

Below each estimated coefficient is the standard error in parentheses. Appendix 2 provides a description of the variables.

Source: Authors’ computation.

Table 5. Regression results: investor sentiment, accounting variables and stock return.

	Column 1 (ACCV = earnings yields)		Column 2(ACCV = profitability)		Column 3 (ACCV = Capital Investment)
	Column 1.1	Column 1.2	Column 2.1	Column 2.2	Column 3.1	Column 3.1
	Coefficient		Coefficient		Coefficient
Intercept	1.327***	1.422***	1.410***	1.470***	1.370***	0.142***
	(0.0975)	(0.1012)	(0.1008)	(0.1053)	(0.0890)	(0.0980)
ACCV	3.232*	1.935*	8.286***	7.506***	5.416***	3.445***
	(1.7056)	(2.320)	(3.2765)	(3.4095)	(1.5583)	(1.310)
INVS	−0.002**	−0.002***	−0.002***	−0.002***	−0.002***	−0.002***
	(0.0008)	(0.0008)	(0.0009)	(0.0009)	(0.0009)	(0.008)
ACCV*INS	−0.062*	−0.060*	0.213*	0.215*	0.446**	0.347**
	(0.0747)	(0.0677)	(1.961)	(1.2001)	(0.4248)	(0.3948)
CPI	−1.788***	−1.791***	−1.736***	−1.844***	−1.803***	−1.857***
	(0.3239)	(0.3215)	(0.3334)	(0.3289)	(0.3115)	(0.3150)
GDPG	0.137***	0.128***	0.128***	0.115***	0.136***	0.130***
	(0.0372)	(0.0383)	(0.0360)	(0.0368)	(0.0371)	(0.038)
IPG	−0.005***	−0.004***	−0.006***	−0.004***	−0.005***	−0.004***
	(0.009)	(0.0011)	(0.009)	(0.0011)	(0.0008)	(0.0011)
Size		−0.012**		−0.12**		−0.012**
		(0.0049)		(0.0050)		(0.001)
Leverage		0.057		0.055		0.060
		(0.0368)		(0.360)		(0.0379)
MBR		0.166**		0.188**		0.141*
		(0.0755)		(0.0836)		(0.0757)
N	1386	1386	1386	1386	1386	1386

This table reports the results of estimating Eq. (6)(6) $${\mathit{\text{RETU}}}_{i,t+1}={\beta }_0+{\beta }_1{\mathit{\text{ACCV}}}_{i,t}+{{\beta }_2\mathit{\text{INVS}}}_t+{\beta }_3{\mathit{\text{ACCV}}}_{i,t}\mathrm{*}{\mathit{\text{INVS}}}_t+{{{\beta }_4\mathit{\text{MAEV}}}_{i,t}+\beta }_5{\mathit{\text{CONV}}}_{i,t}{+\mu }_{i,t+1}$$(6) .

***, ** and * denote significance at 1, 5 and 10%, respectively.

Below each estimated coefficient is the standard error in parentheses. Appendix 2 provides a description of the variables.

Source: Authors’ computation.

Table 6. Regression results: investor sentiment, measures of earnings quality (ACCRQ & COMPAQ) and stock return.

Panel A			Panel B
	Column 1	Column 2		Column 1	Column 2
	Coefficients	Coefficients		Coefficients	Coefficients
Intercept	1.448***	1.493***	Interpret	1.369***	1.451***
	(0.1096)	(0.1113)		(0.144)	(0.1021)
ACCRQ	0.068	0.091	COMPAQ	0.020	0.010
	(0.0610)	(0.0640)		(0.1008)	(0.0278)
INS	−0.008**	−0.002**	INVS	−0.002**	−0.002**
	(0.0008)	(0.008)		(0.009)	(0.008)
ACCRQ*INVS	−0.022**	−0.005**	COMPAQ*INVS	−0.001**	−0.089**
	(0.0094)	(0.0018)		(0.0006)	(0.0075)
CPI	−1.683***	−1.751***	CPI	−1.630***	−1.744***
	(0.3275)	(0.3063)		(0.313)	(0.311)
GDPG	0.136***	0.129***	GDPG	0.137***	0.128***
	(0.0370)	(0.0383)		(0.037)	(0.038)
IPG	−0.006***	−0.004***	IPG	−0.006***	−0.004***
	(0.0009)	(0.0010)		(0.0009)	(0.0011)
Size		−0.012**	Size		−0.13**
		(0.0048)			(0.005)
Leverage		0.060	Leverage		0.057
		(0.0379)			(0.0368)
MBR		0.195**	MBR		0.189**
		(0.0762)			(0.0759)
N	1386	1386	N	1386	1386

This table reports the results of estimating Eq. (7)(7) $${\mathit{\text{RETU}}}_{i,t+1}={\beta }_0+{\beta }_1{\mathit{\text{MEQ}}}_{i,t}+B_2{\mathit{\text{INVS}}}_t+{\beta }_3{\mathit{\text{MEQ}}}_{i,t}\mathrm{*}{\mathit{\text{INVS}}}_t+{\beta }_4{\mathit{\text{MAEV}}}_{i,t}+{\beta }_5{C\mathrm{O}\mathit{\text{NV}}}_{i,t}+{\mu }_{i,t+1}$$(7) .

***, ** and * denote significance at 1, 5 and 10%, respectively.

Below each estimated coefficient is the standard error in parentheses. Appendix 2 provides a description of the variables.

Source: Authors’ computation.

Table

Variables	Data Source
Stock returns Share price	IRESS Research domain
Accounting variables Earnings yields Change in profitability Capital investment	IRESS Research domain
Earnings quality Accrual quality COMPAQ	IRESS Research domain
Investor sentiment FNB/BER Consumer confidence index	Bureau of Economic Research website
Control variables Firm’s size Leverage Market to book ratio	IRESS Research domain
Macroeconomics variables Inflation GDP Growth Industrial production growth	SARS Website

Table

Symbols	Description
RETU	Annual stock return
EARY	Earnings yields, computed as earnings divided by book value of equity
CPROFI	Change in profitability computed as change in return on equity multiplied by book value of equity
CAPI	Capital Investment computed as the change in book value of equity
ACCRQ	Accrual quality computed using Eq. (3)(3) $$\mathit{\text{NACC}}{R}_{i,t}={\widehat{\beta }}_1\left(\frac{1}{\mathit{\text{ASS}}{E}_{i,t-1}}\right)+{\widehat{\beta }}_2\left(\frac{\mathit{\text{CRE}}{V}_{i,t}}{\mathit{\text{ASS}}{E}_{i,t-1}}\right)+{\widehat{\beta }}_3\hspace{0.17em}\left(\frac{\mathit{\text{PPE}}{Q}_{i,t}}{\mathit{\text{ASS}}{E}_{i,t-1}}\right)$$(3)
NACCR	Normal accrual
ASSE	Total assets
CREV	Change in revenue
PPE	Property, Plant and Equipment
COMPAQ	Accrual, computed as the change in common stockholder’s equity minus change in cash and cash equivalent
ACCV	Accounting variables, either, earnings, change in profitability or capital investment
MEQ	Measures of quality, either ACCRQ or COMPAQ
INS	Investor sentiment, proxied by CCI
CCI	Annual South African Consumer confidence index (Also called FNB/BER CCI), computed by averaging its quarterly values.
CONV	Control variables
Size	Firm size computed as the natural logarithm of market value of equity.
Leverage	Firm leverage computed as debts divided by total equity
MAEV	Macroeconomic variables
MBR	Market to book ratio computed as book value of equity divided by market value of equity
CPI	Inflation measured by the Consumer price index
GDPG	Gross domestic product Growth
IPG	Industrial production growth

Data availability

Data are available on request