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Examining the role of investor behavior and market sentiment in shaping asset pricing mechanisms: a comparative study of developed and emerging market economies
- 1 Monash University, Melbourne, Australia
- 2 University of Melbourne, Melbourne, Australia
* Author to whom correspondence should be addressed.
Abstract
This study explores the influence of investor behavior and market sentiment on asset pricing mechanisms in both developed and emerging market economies. By comparing markets such as the United States, Japan, Brazil, and India, the research investigates how psychological factors, including overconfidence, loss aversion, and sentiment, affect asset returns and market volatility. Data spanning 10 years (2010-2020) is analyzed, incorporating traditional financial indicators, macroeconomic factors, and sentiment data derived from social media, news platforms, and sentiment indices. The empirical findings reveal significant heterogeneity across markets. In emerging markets, investor sentiment demonstrates a more pronounced effect on asset pricing, with sentiment fluctuations contributing significantly to volatility. In contrast, developed markets like the U.S. and Japan exhibit more stability, with investor behavior driven largely by fundamentals. A new sentiment resonance model is developed to capture the spillover effect of sentiment from developed to emerging markets, while behavioral finance models are enhanced to account for the emotional transmission between investor decisions and asset prices. The study suggests that incorporating behavioral insights into traditional asset pricing models can improve their explanatory power, particularly in emerging markets where investor sentiment plays a pivotal role in shaping asset prices.
Keywords
investor behavior, market sentiment, asset pricing, behavioral finance, developed markets
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Cite this article
Li,J.;Song,Z. (2025). Examining the role of investor behavior and market sentiment in shaping asset pricing mechanisms: a comparative study of developed and emerging market economies. Journal of Fintech and Business Analysis,2(1),65-69.
Data availability
The datasets used and/or analyzed during the current study will be available from the authors upon reasonable request.
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