Investor Sentiment in Stocks and Futures Markets

Research Article
Open access

Investor Sentiment in Stocks and Futures Markets

Sikai Tang 1*
  • 1 University of Aberdeen    
  • *corresponding author s.tang.22@abdn.ac.uk
Published on 10 November 2023 | https://doi.org/10.54254/2754-1169/41/20232033
AEMPS Vol.41
ISSN (Print): 2754-1177
ISSN (Online): 2754-1169
ISBN (Print): 978-1-83558-103-2
ISBN (Online): 978-1-83558-104-9

Abstract

As nations implement interest rate hikes and the economy heads towards a downward trajectory, investor sentiment undergoes a significant transformation. While extensive research has explored how investor sentiment influences stock markets, there is limited investigation into its effects on futures markets. This study aims to delve into various methodologies used to examine investor sentiment, including existed indexes, news analysis, and machine learning techniques. The study will evaluate how investor sentiment influences futures market and explore the connection between futures market and stock market. It acknowledges that there are both similarities and differences in studying investor sentiment in the stock and futures markets and suggests that futures market may play a role in affecting stock market prices. By conducting a thorough review of existing literature, the objective is to enhance our understanding of price dynamics in both the futures and stock markets within the context of the current global economic downturn.

Keywords:

investor sentiment, futures markets, downturn

Tang,S. (2023). Investor Sentiment in Stocks and Futures Markets. Advances in Economics, Management and Political Sciences,41,49-54.
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References

[1]. De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J.: Noise Trader Risk in Financial Markets. Journal of Political Economy, 98(4), 703–738 (1990).

[2]. Bijl, L., Kringhaug, G., Molnár, P., & Sandvik, E: Google searches and stock returns. International Review of Financial Analysis, 45, 150–156 (2016).

[3]. Chen, R., Bao, W., & Jin, C. Investor sentiment and predictability for volatility on energy futures Markets: Evidence from China. International Review of Economics & Finance, 75, 112–129 (2021).

[4]. Zhang, C.: Defining, Modeling, and Measuring Investor Sentiment, University of CA, Berkeley, Department of Economics, Berkeley, CA (2008).

[5]. DUMAS, B., KURSHEV, A., & UPPAL, R.: Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility. The Journal of Finance, 64(2), 579–629 (2009).

[6]. Joseph, K., Babajide Wintoki, M., & Zhang, Z: Forecasting abnormal stock returns and trading volume using investor sentiment: Evidence from online search. International Journal of Forecasting, 27(4), 1116–1127 (2011).

[7]. Aggarwal, D.: Defining and measuring market sentiments: a review of the literature. Qualitative Research in Financial Markets, 14(2), 270–288 (2019).

[8]. Simon, D. P., & Wiggins, R. A.: S&P futures returns and contrary sentiment indicators. Journal of Futures Markets, 21(5), 447–462 (2001).

[9]. Giot, P.: Relationships Between Implied Volatility Indexes and Stock Index Returns. The Journal of Portfolio Management, 31(3), 92–100 (2005).

[10]. Da, Z., Engelberg, J., & Gao, P.: The Sum of All FEARS Investor Sentiment and Asset Prices. Review of Financial Studies, 28(1), 1–32 (2014).

[11]. Renault, T.: Intraday online investor sentiment and return patterns in the U.S. stock market. Journal of Banking & Finance, 84, 25–40 (2017).

[12]. Fang, J., Gozgor, G., Lau, C. K. M., & Lu, Z.: The impact of Baidu Index sentiment on the volatility of China’s stock markets. Finance Research Letters, 32, 101099 (2020).

[13]. Liang, C., Tang, L., Li, Y., & Wei, Y.: Which sentiment index is more informative to forecast stock market volatility? Evidence from China. International Review of Financial Analysis, 71, 101552 (2020).

[14]. Lee, W. Y., Jiang, C. X., & Indro, D. C.: Stock market volatility, excess returns, and the role of investor sentiment. Journal of Banking & Finance, 26(12), 2277–2299 (2002).

[15]. Qiu, L. X., & Welch, I.: Investor Sentiment Measures. SSRN Electronic Journal. (2006).

[16]. Schmeling, M.: Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408 (2009).

[17]. Wang, C.: Investor sentiment, market timing, and futures returns. Applied Financial Economics, 13(12), 891–898 (2003).

[18]. Jing, N., Wu, Z., & Wang, H.: A hybrid model integrating deep learning with investor sentiment analysis for stock price prediction. Expert Systems With Applications, 178, 115019 (2021).

[19]. Wang, C.: Investor Sentiment and Return Predictability in Agricultural Futures Markets. Journal of Futures Markets, 21(10), 929–952 (2001).

[20]. Akyildirim, E., Cepni, O., Pham, L., & Uddin, G. S.: How connected is the agricultural commodity market to the news-based investor sentiment? Energy Economics, 113, 106174 (2022).

[21]. Smales, L., & Lucey, B.: The influence of investor sentiment on the monetary policy announcement liquidity response in precious metal markets. Journal of International Financial Markets, Institutions and Money, 60, 19–38 (2019).

[22]. Wang, L., Ma, F., Niu, T., & Liang, C.: The importance of extreme shock: Examining the effect of investor sentiment on the crude oil futures market. Energy Economics, 99, 105319 (2021).

[23]. Smales, L.: The importance of fear: investor sentiment and stock market returns. Applied Economics, 49(34), 3395–3421 (2017).

[24]. Song, Y., Ji, Q., Du, Y. J., & Geng, J. B.: The dynamic dependence of fossil energy, investor sentiment and renewable energy stock markets. Energy Economics, 84, 104564 (2019).

[25]. Hou, Y. G., & Li, S.: Volatility and skewness spillover between stock index and stock index futures markets during a crash period: New evidence from China. International Review of Economics & Finance, 66, 166–188 (2020).

[26]. Hou, Y., & Li, S.: Volatility behaviour of stock index futures in China: a bivariate GARCH approach. Studies in Economics and Finance, 32(1), 128–154 (2015).


Cite this article

Tang,S. (2023). Investor Sentiment in Stocks and Futures Markets. Advances in Economics, Management and Political Sciences,41,49-54.

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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About volume

Volume title: Proceedings of the 7th International Conference on Economic Management and Green Development

ISBN:978-1-83558-103-2(Print) / 978-1-83558-104-9(Online)
Editor:Canh Thien Dang
Conference website: https://www.icemgd.org/
Conference date: 6 August 2023
Series: Advances in Economics, Management and Political Sciences
Volume number: Vol.41
ISSN:2754-1169(Print) / 2754-1177(Online)

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References

[1]. De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J.: Noise Trader Risk in Financial Markets. Journal of Political Economy, 98(4), 703–738 (1990).

[2]. Bijl, L., Kringhaug, G., Molnár, P., & Sandvik, E: Google searches and stock returns. International Review of Financial Analysis, 45, 150–156 (2016).

[3]. Chen, R., Bao, W., & Jin, C. Investor sentiment and predictability for volatility on energy futures Markets: Evidence from China. International Review of Economics & Finance, 75, 112–129 (2021).

[4]. Zhang, C.: Defining, Modeling, and Measuring Investor Sentiment, University of CA, Berkeley, Department of Economics, Berkeley, CA (2008).

[5]. DUMAS, B., KURSHEV, A., & UPPAL, R.: Equilibrium Portfolio Strategies in the Presence of Sentiment Risk and Excess Volatility. The Journal of Finance, 64(2), 579–629 (2009).

[6]. Joseph, K., Babajide Wintoki, M., & Zhang, Z: Forecasting abnormal stock returns and trading volume using investor sentiment: Evidence from online search. International Journal of Forecasting, 27(4), 1116–1127 (2011).

[7]. Aggarwal, D.: Defining and measuring market sentiments: a review of the literature. Qualitative Research in Financial Markets, 14(2), 270–288 (2019).

[8]. Simon, D. P., & Wiggins, R. A.: S&P futures returns and contrary sentiment indicators. Journal of Futures Markets, 21(5), 447–462 (2001).

[9]. Giot, P.: Relationships Between Implied Volatility Indexes and Stock Index Returns. The Journal of Portfolio Management, 31(3), 92–100 (2005).

[10]. Da, Z., Engelberg, J., & Gao, P.: The Sum of All FEARS Investor Sentiment and Asset Prices. Review of Financial Studies, 28(1), 1–32 (2014).

[11]. Renault, T.: Intraday online investor sentiment and return patterns in the U.S. stock market. Journal of Banking & Finance, 84, 25–40 (2017).

[12]. Fang, J., Gozgor, G., Lau, C. K. M., & Lu, Z.: The impact of Baidu Index sentiment on the volatility of China’s stock markets. Finance Research Letters, 32, 101099 (2020).

[13]. Liang, C., Tang, L., Li, Y., & Wei, Y.: Which sentiment index is more informative to forecast stock market volatility? Evidence from China. International Review of Financial Analysis, 71, 101552 (2020).

[14]. Lee, W. Y., Jiang, C. X., & Indro, D. C.: Stock market volatility, excess returns, and the role of investor sentiment. Journal of Banking & Finance, 26(12), 2277–2299 (2002).

[15]. Qiu, L. X., & Welch, I.: Investor Sentiment Measures. SSRN Electronic Journal. (2006).

[16]. Schmeling, M.: Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408 (2009).

[17]. Wang, C.: Investor sentiment, market timing, and futures returns. Applied Financial Economics, 13(12), 891–898 (2003).

[18]. Jing, N., Wu, Z., & Wang, H.: A hybrid model integrating deep learning with investor sentiment analysis for stock price prediction. Expert Systems With Applications, 178, 115019 (2021).

[19]. Wang, C.: Investor Sentiment and Return Predictability in Agricultural Futures Markets. Journal of Futures Markets, 21(10), 929–952 (2001).

[20]. Akyildirim, E., Cepni, O., Pham, L., & Uddin, G. S.: How connected is the agricultural commodity market to the news-based investor sentiment? Energy Economics, 113, 106174 (2022).

[21]. Smales, L., & Lucey, B.: The influence of investor sentiment on the monetary policy announcement liquidity response in precious metal markets. Journal of International Financial Markets, Institutions and Money, 60, 19–38 (2019).

[22]. Wang, L., Ma, F., Niu, T., & Liang, C.: The importance of extreme shock: Examining the effect of investor sentiment on the crude oil futures market. Energy Economics, 99, 105319 (2021).

[23]. Smales, L.: The importance of fear: investor sentiment and stock market returns. Applied Economics, 49(34), 3395–3421 (2017).

[24]. Song, Y., Ji, Q., Du, Y. J., & Geng, J. B.: The dynamic dependence of fossil energy, investor sentiment and renewable energy stock markets. Energy Economics, 84, 104564 (2019).

[25]. Hou, Y. G., & Li, S.: Volatility and skewness spillover between stock index and stock index futures markets during a crash period: New evidence from China. International Review of Economics & Finance, 66, 166–188 (2020).

[26]. Hou, Y., & Li, S.: Volatility behaviour of stock index futures in China: a bivariate GARCH approach. Studies in Economics and Finance, 32(1), 128–154 (2015).