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.
|Journal||International Journal of Finance & Economics|
|Publication status||Accepted/In press - 2020|
- Investor Sentiment
- Laggards to Leading
- Growth Opportunity