Does sentiment determine investor trading behaviour?

ABSTRACT

Sentiment is a determinant of investors’ trading decisions and behaviours. After a sentiment shock, investors’ net positions change differently across investor types. In response to a sentiment change, individual (institutional) investors follow a positive (negative) feedback strategy, reflecting their different trading and investment purposes.

KEYWORDS:

• Emerging market
• investor sentiment
• investor type
• net position
• trading behaviour

JEL CLASSIFICATION:

• G10
• G17
• G40

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ Korean companies disclose their annual financial statements in March. Our sample therefore includes the most recent financial information available in the market.

² Foreign investors mostly consist of foreign institutions. The proportion of foreign individual investors is negligible.

³ For a robustness check, we incorporate the industrial production index and dividend yields into our regression model to control for potential macroeconomic effects on the next-period trading decisions of each investor type. The results are consistent with those in Table 2.

Additional information

Funding

This work was supported by the National Research Foundation of Korea (NRF) grant funded by the Korea government (MSIT; Ministry of Science and ICT) [2019R1G1A1100196].