Market sentiment: a key factor of investors’ imitative behaviour

Natividad Blasco · Pilar Corredor · Sandra Ferreruela

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Financial Markets and Investment Strategies Financial Risk and Volatility Modeling Stock Market Forecasting Methods

Abstract

Abstract The aim of this paper is to explore herding behaviour among investors to determine its rational and emotional component factors and identify relationships among them. We apply causality tests to evaluate the impact of return and market sentiment on herding intensity. The herding intensity is quantified using the measure developed by Patterson and Sharma (2006) . The research was conducted during the period 1997–2003 in the Spanish stock market, where the presence of herding has been confirmed. The results reveal that the herding intensity depends on past returns and sentiment or subjective assessments and confirm the presence of both a rational and an emotional factor.

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References

1979Prospect Theory: An Analysis of Decision under Risk 1988Prospect theory: An analysis of decision under risk 1969Investigating Causal Relations by Econometric Models and Cross-spectral Methods 1992A Simple Model of Herd Behavior 1990Noise Trader Risk in Financial Markets 2006Investor Sentiment and the Cross‐Section of Stock Returns 1998Are Investors Reluctant to Realize Their Losses?1988RATIONAL CHOICE AND THE FRAMING OF DECISIONS

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