The Impact of Investor Sentiment on Stock Returns in Developing Countries
- Qian Zhao , Interdisciplinary Studies College, Payap University, Chiangmai, Thailand.
- Qian Wei , School of International Economics and Trade, Guangxi University of Foreign Languages, Nanning, China.
Keywords:
Investor Sentiment, Stock Market, Stock Returns, Behavioural Finance, Emerging Markets..
Abstract
This study investigates the behaviour of stock prices in developing countries, with a particular focus on the impact of investor sentiment on stock returns. The research demonstrates that the dynamics of global financial markets, combined with advanced information technology, render investor sentiment a critical factor in the performance of emerging stock markets. While traditional financial theories operate on the assumption of rational economic agents, the field of behavioural finance provides compelling evidence of the influence of investor sentiment on stock returns. This effect is likely to be more pronounced in emerging markets, where levels of investor irrationality tend to be heightened. Employing concepts from behavioural finance, the efficient market hypothesis, and theories of emotional contagion, this paper develops a theoretical model and formulates key research hypotheses to explore the role of investor sentiment in determining stock returns within the context of developing nations. The analysis of empirical data from the BRICS nations supports these hypotheses, revealing a positive correlation between investor sentiment and future stock returns in several of these countries. This research extends the existing literature on behavioural finance by addressing the phenomenon of speculative bubble bursts in emerging markets. Furthermore, it offers insights that may be of significant relevance to policymakers, contributing to the development of effective interventions aimed at stabilising various markets, protecting investors, and promoting the healthy growth of financial markets.