Bidirectional Relationship between Investor Sentiment and Excess Returns: New Evidence from the Wavelet Perspective

Publikations-Art

Arbeitspapier/Diskussionspapier

Autoren

Marczak, Martyna and Beissinger, Thomas

Erscheinungsjahr

2015

Veröffentlicht in

Hohenheim Discussion Papers in Business, Economics and Social Sciences

Herausgeber

Faculty of Business, Economics and Social Sciences

Band/Volume

06-2015/

This paper sheds new light on the mutual relationship between investor sentiment and excess returns corresponding to the bubble component of stock prices. We propose to use the wavelet concept of the phase angle to determine the lead-lag relation between these variables. The wavelet phase angle allows for decoupling short- and long-run relations and is additionally capable of identifying time-varying comovement patterns. By applying this concept to excess returns of the monthly S&P500 index and two alternative monthly US sentiment indicators we find that in the short run (until 3 months) sentiment is leading returns whereas for periods above 3 months the opposite can be observed.