Investor Sentiment and Stock Market Crashes: A Heliobiological Perspective

Abstract

We propose that solar activities are related to investor sentiment and stock market crashes. We find that the number of sunspots is significantly and negatively associated with the frequency and severity of market crashes. Adopting structural equation modeling and using traditional sentiment indices as mediator variables, we find that the number of sunspots has significant direct effects on the intensity and density of market crashes. The relation between sunspots and market crashes applies to the U.S. stock market and other developed and emerging stock markets.

Keywords: investor sentiment, Market crashes, Sunspots, SEM