How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data

Zouaoui, Mohamed; Nouyrigat, Geneviève; Beer, Francisca

doi:10.2139/ssrn.1584566

Cited by 44 publications

(67 citation statements)

References 35 publications

(56 reference statements)

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“…Mayraz (2013) shows that even if there are hedging incentives, optimistic and wishful subjects at high prices expect more rallies in prices to be up-beat than those at low prices. Zouaoui et al (2011) with the European countries' data show that consumer confidence index translates into herding behavior and over confidence at times of market crisis. Herding may happen at information cascade (Christoffersen & Tang, 2009;Radalj & McAleer, 2003) or at information risks (Boortz et al 2014).…”

Section: Traders' Psychologymentioning

confidence: 89%

Stocks’ pricing dynamics and behavioral finance: A review

Sinha¹

2015

10.5267/j.msl

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In a brief review of the literature on stocks' pricing, the study shows that information vis-à-vis noise serves critical roles in the equilibrium process. It is dynamic in nature and there are different infiltrating aspects from the standard finance to behavioral finance points of views. The aspects of market efficiency, fundamental risk, noise traders' risk, and implementation costs make the stock markets noisy and thereby, limit the arbitrage opportunity of informed traders. Investors' psychological bases viz., belief and preferences contribute more in the equilibrium process. Beliefs include representativeness, conservativeness, and anchoring, availability biases, optimism and wishful thinking, overconfidence, and herd behavior tendency on the part of the investors. On the preferences, investors are influenced by disposition effect, prospects based on reference points, mental accounting, ambiguity aversion, and self control.The study explores the empirical literature also and reviews the six puzzles in the standard finance. Finally, the work identifies a few research gaps to be addressed in the literature.Growing Science Ltd. All rights reserved. 5

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Section: Traders' Psychologymentioning

confidence: 89%

Stocks’ pricing dynamics and behavioral finance: A review

Sinha¹

2015

10.5267/j.msl

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“…In the actual financial market, investors are not rational but boundedly rational and systematic biases in their beliefs cause them to trade on nonfundamental information [11]. This will lead to credit asset price fluctuation and induce credit risk contagion generation.…”

Section: Definition Of the Evolving Network Model Of Credit Risk Contmentioning

confidence: 99%

“…Thus, the behavioral factors of investors and financial market regulators, particularly investor sentiments, exert important spillover effects of credit risk contagion. The market behavioral approach recognizes that investors are not "rational" but "boundedly rational" and that systematic biases in their beliefs cause them to trade on nonfundamental information called "sentiment" [11]. Several financial economists also recognize that the market exhibits mood swings.…”

Section: Introductionmentioning

confidence: 99%

Credit Risk Contagion in an Evolving Network Model Integrating Spillover Effects and Behavioral Interventions

2018

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We introduce an evolving network model of credit risk contagion in the credit risk transfer (CRT) market. The model considers the spillover effects of infected investors, behaviors of investors and regulators, emotional disturbance of investors, market noise, and CRT network structure on credit risk contagion. We use theoretical analysis and numerical simulation to describe the influence and active mechanism of the same spillover effects in the CRT market. We also assess the reciprocal effects of market noises, risk preference of investors, and supervisor strength of financial market regulators on credit risk contagion. This model contributes to the explicit investigation of the connection between the factors of market behavior and network structure. It also provides a theoretical framework for considering credit risk contagion in an evolving network context, which is greatly relevant for credit risk management.

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“…Thus, such a severe crash is not only explained by 'rational' investors, who identify realistic investment risks and realistic valuation of equities. Therefore also emotional decision making, and irrational investors led to such a sever stock exchange crash (Zouaoui et al 2010)-the investor's sentiment as an explanation for irrational behavior on investment decisions are not fully based on facts (De Long et al 1990). However the notion that it's better to follow the herd than going against the flow might cause high losses (Shleifer and Vishny 1997) maintains a self-proficiency-or a closed circuit.…”

Section: A Brief History Of Theories To Explain the Stock Exchangementioning

confidence: 99%

“…The total set of indicators can be seen as a list of sentiment indicators for the DAX 30. Table 1 compiles several indicators [extended from the indicators listed in Baker & Wurgler (2007) and Zouaoui et al (2010)]. …”

Section: Sentiment Analysis and Indicators On The Stock Exchangementioning

confidence: 99%

Predicting the Future of Investor Sentiment with Social Media in Stock Exchange Investments: A Basic Framework for the DAX Performance Index

Lugmayr

2012

Handbook of Social Media Management

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Today, social media are emerging as a new platform for information exchange, discussions, and as a source of news. Many companies utilize social media platforms as marketing tools or for promotional purposes as a part of a marketing mix. Today, also online brokers provide online discussion forums, blogs, networking tools, educational material, or networking platforms as part of their marketing mix in order to directly reach the end consumer. Thus, today, social networks provide a pool of collaborative knowledge, which also allows the understanding of collaborative pricing behavior on stock markets. This includes e.g. specialized platforms providing collaborative knowledge around the topic of stock exchange trading via blogs, wikis, or communities. It's obvious that social media therefore provide insights into market sentiments and investing behavior, due to the collaborative knowledge and 'shared mind' of many investors. Social media therefore might act as a market sentiment indicator far beyond the currently existing sentiments based e.g. on questionnaires or quantitative consumer spending indexes. The analysis of the content can provide more insights into behavioral finance on stock markets and might lead to more real-time and accurate sentiments. Existing examples show the relation e.g. between discussions on social media and movie sales. It's obvious that social media based sentiment analysis provides new insights into the relation between stock exchange pricing and investors' sentiments and eventually into new behavior financing models. Example services, as e.g. StockTwits demonstrate the efficiency of social media as a tool (StockTwits, n.d.).Currently the trend of social media attempts to measure brand value, or market sentiments of movies or products. However, their impact as sentiment measurement

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How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data

Cited by 44 publications

References 35 publications

Stocks’ pricing dynamics and behavioral finance: A review

Stocks’ pricing dynamics and behavioral finance: A review

Credit Risk Contagion in an Evolving Network Model Integrating Spillover Effects and Behavioral Interventions

Predicting the Future of Investor Sentiment with Social Media in Stock Exchange Investments: A Basic Framework for the DAX Performance Index

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