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 ten 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 sectors 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 the sectors’ 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.
|Number of pages||57|
|Publication status||Published - 11 Jun 2019|
|Event||INFINITI Conference on International Finance 2019 - Glasgow, United Kingdom|
Duration: 9 Jun 2019 → 11 Jun 2019
|Conference||INFINITI Conference on International Finance 2019|
|Period||9/06/19 → 11/06/19|