Market Psychology and Aggregate Stock Returns: Evidence from Australian Consumer Sentiment

We present evidence that consumer sentiment has a direct effect on excess aggregate stock returns. We also trace the source of this positive effect and find that public perception over the next year’s economic condition is the most important determinant for the stock market. Our findings remain conclusive even in the presence of other well known risk-based factors. The evidence thus supports behaviour finance theory that incorporates both psychological judgement and systematic risks. However, we do not find that past stock returns are influential on current sentiment nor do we find current sentiment Granger-cause subsequent stock return.


Issue Date:
2009-03
Publication Type:
Journal Article
PURL Identifier:
http://purl.umn.edu/143218
Published in:
Review of Applied Economics, Volume 05, Number 1-2
Page range:
67-81
Total Pages:
15
JEL Codes:
G12; G14
Series Statement:
Vol.5
No.1-2




 Record created 2017-04-01, last modified 2017-04-28

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