Cross-Market Investor Sentiment in Commodity Exchange-Traded Funds
Credit and Capital Markets, Issue 2, Vol. 48, 2015
37 Pages Posted: 12 Sep 2015
Date Written: March 18, 2015
This study shows how the investor sentiment in the stock market affects prices of commodity exchange-traded funds (ETFs). The study provides quantitative evidence that the tracking errors of commodity ETFs differ in the bullish versus the bearish stock market, and the aggregate tracking error of commodity ETFs is sensitive to the well-known sentiment measures. The study exploits a profitable trading strategy based on investor sentiment in the stock market and commodity market. The sentiment-driven demand for commodity ETFs could exist even after consideration of trading costs, and it is a short-term phenomenon. This unique evidence indicates investor sentiment affects asset valuation across markets.
Keywords: Investor Sentiment; Tracking Errors; Commodity ETFs
JEL Classification: G10; G23
Suggested Citation: Suggested Citation