Investor Sentiment and Stock Market Crashes: A Heliobiological Perspective

52 Pages Posted: 30 Oct 2024

See all articles by Chia-Chen Teng

Chia-Chen Teng

Chung Yuan Christian University - Department of Finance

Wei-Shao Wu

National Taipei University of Business

J. Jimmy Yang

Oregon State University

Abstract

This paper investigates the impact of solar activities on market crashes based on the literature concerning solar activities and investor sentiment. Our analysis reveals a significant and inverse relation between solar activities and the frequency as well as severity of market crashes. The relation remains robust when considering the interaction with macroeconomic variables, alternative metrics for market crashes, and various durations of solar activities. We further find that lower solar activities contribute to increased market illiquidity and volatility as well as a higher incidence and severity of market crashes during highly uncertain periods. Utilizing structural equation modeling (SEM) and incorporating traditional sentiment indices as mediator variables, we find that solar activity exerts significant direct effects on the intensity and density of market crashes. Furthermore, the relation between solar activities and market crashes applies to not only the U.S. stock market but also other developed and emerging stock markets.

Keywords: Investor sentiment, Market crashes, Heliobiological, Solar activities, SEM

Suggested Citation

Teng, Chia-Chen and Wu, Wei-Shao and Yang, J. Jimmy, Investor Sentiment and Stock Market Crashes: A Heliobiological Perspective. Available at SSRN: https://ssrn.com/abstract=5005352 or http://dx.doi.org/10.2139/ssrn.5005352

Chia-Chen Teng (Contact Author)

Chung Yuan Christian University - Department of Finance ( email )

200 Chung Pei Rd
Chung Li City, 32023
Taiwan

Wei-Shao Wu

National Taipei University of Business ( email )

No.321, Sec. 1, Jinan Rd.
Taipei, 100
Taiwan

J. Jimmy Yang

Oregon State University ( email )

426 Austin Hall
Corvallis, OR 97331
United States
5417376005 (Phone)

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