Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/109058
Authors: 
Yang, Yan
Copeland, Laurence
Year of Publication: 
2014
Series/Report no.: 
Cardiff Economics Working Papers E2014/12
Abstract: 
We construct investor sentiment of UK stock market using the procedure of principal component analysis. Using sentiment-augmented EGARCH component model, we analyse the impacts of sentiment on market excess return, the permanent component of market volatility and the transitory component of market volatility. Bullish sentiment leads to higher market excess return while bearish sentiment leads to lower excess return. Sentiment-augmented EGARCH component model compares favourably to the original EGARCH component model which does not take investor sentiment into account. Furthermore, we test the cross-sectional risk premia of the permanent and transitory components of sentiment-affected volatility in the framework of ICAPM.
Subjects: 
investor sentiment
principal component analysis
EGARCH component model
ICAPM
cross-sectional risk premium
JEL: 
G12
G15
Document Type: 
Working Paper

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