Cross-Market Investor Sentiment in Commodity Exchange-Traded Funds

Credit and Capital Markets, Issue 2, Vol. 48, 2015

37 Pages Posted: 12 Sep 2015

See all articles by Hsiu-Lang Chen

Hsiu-Lang Chen

University of Illinois at Chicago - Department of Finance

Date Written: March 18, 2015

Abstract

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

Chen, Hsiulang, Cross-Market Investor Sentiment in Commodity Exchange-Traded Funds (March 18, 2015). Credit and Capital Markets, Issue 2, Vol. 48, 2015 . Available at SSRN: https://ssrn.com/abstract=2658852

Hsiulang Chen (Contact Author)

University of Illinois at Chicago - Department of Finance ( email )

2431 University Hall (UH)
601 S. Morgan Street
Chicago, IL 60607-7124
United States
(312) 355-1024 (Phone)

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