تجارت سر و صدا دار و نوسانات بازار سهام

We investigate the relative effects of fundamental and noise trading on the formation of conditional volatility. We find significant positive (negative) effects of investor sentiments on stock returns (volatilities) for both individual and institutional investors. There are greater positive effects of rational sentiments on stock returns than irrational sentiments. Conversely, there are significant (insignificant) negative effects of irrational (rational) sentiments on volatility. Also, we find asymmetric (symmetric) spillover effects of irrational (rational) bullish and bearish sentiments on the stock market. Evidence in favor of irrational sentiments is consistent with the view that investor error is a significant determinant of stock volatilities.

Noise trader models in finance imply that subsets of investors often do not make investment decisions based on a company's fundamentals and are capable of affecting stock prices by way of unpredictable changes in their sentiments. Much previous research provides a theoretical framework describing the relevance of investor sentiments in asset pricing. Most notable for this paper is the research of DeLong, Shleifer, Summers, and Waldmann (DSSW) (1990). Their creation of the noise trader model lead to further studies which provide evidence in favor of strong co-movements between investor sentiment and the stock market returns recognizing the existence of individual investor sentiments, as well as institutional investor sentiments. Previous research focuses on the mean of stock returns while less attention is given to the impact of sentiments on the formation of conditional volatility. Specifically, the existing tests focus primarily on first moment contemporaneous correlations between investor sentiments and stock returns. No analysis is done to investigate the manner in which noise trading by individual and institutional investors may affect expected return through its effect on the market's formation of risk. The question arises: to what extent do individual and institutional investor sentiments impact stock market volatilities? Moreover, if such relationships do exist, are the effects driven by rational risk factors or noise? Answers to these questions are important in order to better understand how noise trader risk is priced in the U.S. market. In this study, we investigate the relative effects of fundamental and noise trading on the formation of conditional volatility as suggested by DSSW (1990). Specifically, we make the following contribution to the extant literature: first, unlike previous studies which examine the relationship between sentiments and the mean of stock returns, we test the impact of individual and institutional investor sentiments on the stock market volatility; second, unlike previous studies which treat sentiments as fully irrational exuberance, we focus on both the rational and noise (irrational) components of investor sentiments and explore their relative effects on the volatility of stock returns; third, we investigate asymmetrical behavior of investor sentiments and stock volatility by differentiating between bullish and bearish sentiments. We estimate a set of multivariate EGARCH models and find significant positive (negative) effects of investor sentiments on stock market returns (volatilities) for both individual and institutional investors. Unlike previous studies which conjecture investor sentiments as fully irrational, we find that the individual and institutional investor sentiments are driven by both rational and irrational factors. We find that rational sentiments have greater positive effects on stock returns than the irrational sentiments for both classes of investors. In the case of volatility we find significant negative effect of only irrational sentiments. Consistent with the behavioral theories, we find greater effect of irrational bullish sentiments than irrational bearish sentiments on stock market for both individuals and institutions. However, in the case of rational sentiments, we do not find the existence of such asymmetric effects. This remainder of this paper is organized as follows. Section 2 presents the model while Section 3 presents the data. In Section 4, we provide estimation results and Section 5 concludes.

This study investigates the relative effects of fundamental and noise trading on the formation of conditional volatility of stock returns as suggested by DSSW (1990). We estimate a set of multivariate EGARCH model for DJIA and S&P500 returns. The first model is consistent with previous findings in that there are significant positive (negative) effects of investor sentiments on stock market returns (volatilities) for both individuals and institutions.We find these relationships to be asymmetric since there is a greater effect of bullish sentiments than bearish sentiments. The effect of the stock market on the formation of individual investor sentiments (institutional investor sentiments) is significant (insignificant). These results suggest that individuals are more likely to be positive feedback traders.We also find that individual investor sentiments react to institutional investor sentiments but not vice versa. Unlike previous studies which conjecture investor sentiments as fully irrational, we find that the individual and institutional investor sentiments are driven by both rational and irrational factors. The individual investor sentiments are significantly related to business conditions, inflation, dividend yield, excess returns on market, SMB, and HML. Similarly the institutional investor sentiments are significantly related to dividend yield, SMB, and HML. In the second model, we find that rational sentiments have greater positive effects on stock returns than the irrational sentiments for both individuals and institutions. In the case of volatility, we find significant negative effects of only the irrational component of sentiments. Consistent with behavioral theories, we find greater effects of irrational bullish sentiments than irrational bearish sentiments on the stock market for both individuals and institutions. However, in the case of rational sentiments, we do not find the existence of such asymmetric effects. Lastly, we find significant positive effects of stock returns and volatility in the formation of irrational sentiments of individual investors. These results may explain the positive feedback nature of individual investors. Evidence in favor of irrational sentiments is consistent with the view that investor error is a significant determinant of stock volatilities. The direct implication of these results is that conventional measures of temporal variation in risk omit an important source of risk: noise. Overall, the findings suggest that noise is a priced risk factor. We also find strong support for the role of economic fundamentals as determinants of stock market returns and volatility.