Sentiment‐Apt investors and UK sector returns

Abstract

This paper examines the relationship between sentiment‐apt investors and UK stock returns at industry level over the period January 1988 to December 2017. Using two new sentiment proxies (laggards to leaders and growth opportunity index) for 10 discrete sector groupings, we provide novel evidence on how returns in the UK stock market react to the activities of sentiment‐disposed investors. First, using threshold nonlinear regression, we document a significant relationship between the laggards to leaders sentiment proxy and sectoral returns. Our findings reveal that aggregate returns in the sector are affected by activities of investors who embark on profit‐taking when there is an increase in the proportion of lagging to leading stocks beyond the threshold value. Secondly, when using the growth opportunity sentiment proxy, we report that the increase in growth above the growth threshold value has a significant impact on sector returns. This study further confirms significant impact of non‐threshold variables on sector groupings. Our findings are robust, having been subjected to a range of robustness checks.

The Impact of Government Policy Responses to the COVID‐19 Pandemic and Brexit on the UK Financial Market: A Behavioural Perspective

“…, 2019; Sakariyahu et al. , 2021), of which many are indirectly observed. In the absence of absolute measures, we use the Twitter sentiment score (TSS) and government policy announcements (GPA) as proxies for investor sentiments.…”

“…A plenitude of proxies has been documented for sentiments in the literature (Baker and Wurgler, 2006;Jiang et al, 2019;Sakariyahu et al, 2021), of which many are indirectly observed. In the absence of absolute measures, we use the Twitter sentiment score (TSS) and government policy announcements (GPA) as proxies for investor sentiments.…”

“…According to the UK Office of National Statistics (ONS, 2021), as an economic bloc, the European Union is the United Kingdom's largest trading partner; the final exit of the United Kingdom from the bloc, at a time when the COVID-19 pandemic was intensely ravaging all sectors, could only be double jeopardy for the UK economy, hence another motivation for our research. Sakariyahu et al (2021) note that markets react differently to bad and good news. The behaviour of every stock market is a response to shocks from both internal and external environments.…”

“…Sakariyahu et al. (2021) note that markets react differently to bad and good news. The behaviour of every stock market is a response to shocks from both internal and external environments.…”

Chasing noise in the stock market: an inquiry into the dynamics of investor sentiment and asset pricing

“…These research efforts have brought much popularity to the significance of behavioural finance, that is human sentiments, in explaining market outcomes. Sakariyahu et al, (2021) classify sentiment-based studies into five categories. They include market-based sentiment studies such as Baker & Wurgler (2007), Chen (2012), He et al (2019), Paterson et al, (2023).…”