Does Investor Sentiment Predict Future Mexican Stock Market Returns?

38 Pages Posted: 5 Sep 2017

See all articles by Daniel Perez-Liston

Daniel Perez-Liston

University of Saint Thomas, Houston - Department of Economics and Finance

Patricio Torres-Palacio

Independent

Sidika Bayram

Independent

Date Written: August 30, 2017

Abstract

This paper studies whether investor sentiment can predict future Mexican stock market returns. Furthermore, we examine the dynamic correlation between sentiment and returns. Lastly, we examine whether sentiment innovations influence unexpected returns. We find that sentiment has significant predictive power up to 24 months ahead. Higher levels of sentiment today lead to lower returns in the future. We also find that the correlation between investor sentiment and equity returns varies over time. Finally, we find that sentiment innovations are correlated with unexpected returns. Overall, the results suggest that investor sentiment is an important risk factor for the Mexican stock market.

Keywords: Investor Sentiment, Mexico, Returns, Predictive Regressions

JEL Classification: G02, G12, G15

Suggested Citation

Perez-Liston, Daniel and Torres-Palacio, Patricio and Bayram, Sidika, Does Investor Sentiment Predict Future Mexican Stock Market Returns? (August 30, 2017). Available at SSRN: https://ssrn.com/abstract=3029517 or http://dx.doi.org/10.2139/ssrn.3029517

Daniel Perez-Liston (Contact Author)

University of Saint Thomas, Houston - Department of Economics and Finance ( email )

United States

Sidika Bayram

Independent

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