The role of sentiment towards the U.S stock market / Mohd Azwan Sulaiman

The objective of the research is to investigate the role of sentiment in US stock market and to ascertain the state of US stock market efficiency. The state of investor rationality and efficiency of stock market in US are debated in theoretical lenses of the behavioural finance despite being the developed financial market. The fundamental factor which is dividend and behavioural factor, namely, consumer confidence index, business confidence index, and American association of individual investor (bearish, neutral and bullish) that act as the sentiment proxies. These variables are utilized to analyze the relationship with the S&P composite index by implementing 3 statistical methods including linear, nonlinear (quadratic and cubic model) and quantile regression. The research findings are consistent with theoretical perspectives on the view of behavioural finance and existing evidence on revealing the relationship between sentiment and stock market return index that is statistically significant through quantile regression, cubic regression and when the robustness analysis conducted through these 3 model. However, the risk proxies relationship with the stock market is heterogeneous that is in line with the view of stock market in a complex state. In summary, this study offering important finance body of knowledge (academic), practice (investor) and policy implications through a new insight of theoretical and empirical evidence on the role of sentiment towards the stock market in US. Briefly, behavioural factors in particular sentiments can be taken into consideration instead only relying on fundamental factor for stock investment decision making.