Investor Psychological and Behavioral Bias:The Relationship among Sentiment, Herding, Non-herding and Momentum

• Main Authors: Chih-cheng Yeh, 葉智丞
• Other Authors: Chun-An Li
• Format: Others
• Language: zh-TW
• Published: 2011
• Online Access: http://ndltd.ncl.edu.tw/handle/66926557373099531374

博士 === 雲林科技大學 === 管理研究所博士班 === 99 === This paper aims to discuss and understand the relationship between investor psychology and behavioral biases to reduce emotions and mental errors. The article is divided into two sections. Previous literature pays more attention on price momentum instead on sentiment momentum. In this study, we examined Taiwan stock market to reinvestigate price momentum, sentiment momentum, and the relationship between the price and sentiment momentums are examined. It is found that not only the price momentum but also the sentiment momentum exist in Taiwan stock market. Market returns, sentiment momentum, and price momentum form a complete round that repeats. We also find that the short-middle-term price momentum has connection with low-sentiment losers, and, the middle-term price reversal is related to high sentiment losers. In most cases, the strategy of buying high sentiment losers and selling low sentiment winners as well as the strategy of buying sentiment momentum and selling price momentum are observed to generate stable positive returns. This result is helpful for investors in making their long term investment plans. Furthermore, previous literature used to pay more attention on investor sentiment or herding, while the paper focuses on the issue of the relationship among investor sentiment, herding and non-herding. The study also examines the impact of their interaction on stock market. It is found that investor sentiment affects herding, and herding and non-herding influence each other. Investor sentiment of bull market and non-herding of bear market have a positive relationship with market returns. Investor sentiment of bear market and non-herding of bull market have negative impact on market returns. Herding of bear market has negative influence on market returns only. Herding strengthens the market volatility, while non-herding weakens it. In addition, eight types of effects on the stock market resulted from the interaction among investor sentiment, herding and non-herding are corresponding respectively to eight psychological states of investor: suspicion, hope, optimism, euphoria, overconfidence, ambivalence, pessimism and fear. The study findings indicate that every psychological state has a significant influence on market returns.