Asymmetric effects of investor sentiment on industry stock returns: Panel data evidence

• Published in: Emerging markets review Vol. 14; pp. 35 - 54
• Main Authors: Chen, Mei-Ping, Chen, Pei-Fen, Lee, Chien-Chiang
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.03.2013; Elsevier BV
• Subjects: Asia; Asians; Asymmetric effect; Economic theory; Financial performance; Industry; Industry stock returns; International; Investor sentiment; Investors; Markets; Medical service; Panel threshold model; Pessimism; Petroleum industry; Rates of return; Stock exchanges; Stocks; Studies; Telecommunications; United States > US; Panel threshold model; C23; Asia; Investor sentiment; G15; Industry stock returns; Asymmetric effect
• ISSN: 1566-0141; 1873-6173; 1566-0141
• DOI: 10.1016/j.ememar.2012.11.001

This article employs a state-of-the-art panel threshold model by allowing for regime intercepts, in order to shed new light on the asymmetric/nonlinear effects of local and global sentiments on expected industry stock returns among 11 Asian countries during the period from 1996 to 2010. Empirical evidence demonstrates that once the regime intercept is included, the asymmetric effects of global sentiment on oil & gas, financials, and health care industry returns become less under optimism, as compared with under pessimism. More critically, the positive (negative) impact of global sentiment above (under) the threshold turns significant, indicating that global optimism leads industry returns to be overvalued, while pessimism leads them to be undervalued. For local market sentiment, our results support that higher local sentiment enhances the returns of basic materials, telecommunications, and utilities industries. The empirical results confirm that the nexus of industry returns and investor sentiments is subject to change between different sentimental intervals. ► Examine nexus of local, global sentiments, and industry returns by panel threshold. ► Younger, speculative industry fits a linear local sentiment-returns model better. ► FIN, HEA and OIL profit when global sentiment is above threshold. ► Nonlinear and asymmetry of sentiments on industry returns should be considered. ► Nexus of industry returns and sentiments change in diverse sentimental intervals.