Does Taiwan’s Comfort Index Help Explain the Variations of Investor Sentiment and Stock Returns?
Date Issued
2011
Date
2011
Author(s)
Wu, Wen-Hsin
Abstract
This study explores whether and the extent to which Taiwan’s Comfort Index helps explain the variations of investor sentiment and stock returns.
The empirical results suggest that Taiwan’s stock market performs the best in comfortable weather and the worst in hot weather conditions. The former piece of evidence is consistent with the statement regarding the physiological effect in prior studies, which, specifically, document that pleasant weather conditions arouse an optimistic mood and behavior.
Moreover, this study documents that direct investor sentiment has a significantly positive correlation with stock returns, daily trading volume, day trading ratio, margin purchase, short sales, retail and three institutional investors’ turnover, and three investors’ net purchase or net sell. Taiwan’s Comfort Index has a significantly negative interference effect on daily trading volume between direct investor sentiment and trading behavior, and a positive interference effect on margin purchase. Furthermore, the more extreme the weather condition, the greater the day trading ratio is.
Subjects
Weather Effect
Behavioral Finance
Investor Sentiment
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