INVESTOR SENTIMENT AND STOCK INDEX RETURNS: THE CASE OF SAUDI STOCK EXCHANGE (TADAWUL)

Abdulrahman Abdullah Alrabiah, Saudi Aramco, Saudi Arabia

Published in

JOURNAL OF INTERNATIONAL FINANCE AND ECONOMICS
Volume 19, Issue 2, p25-34, June 2019

ABSTRACT

This paper aims to study investors’ sentiment in the Saudi stock market (Tadawul) using an indirect metrology often used in the extant literature when direct observation and measurement of investor sentiment is not feasible. Direct assessments of investor sentiment are conducted through surveys, whereas indirect assessments use various market-relevant proxies. At first and at Tadawul level, investor sentiment is assessed using key macroeconomic variables such as gross domestic product, inflation, and interest rates to assessed presence of investor sentiment. Subsequently, ten major well diversified firms were selected to investigate the investor sentiment. The ten selected firms represent over 50% of overall Tadawul market capitalization. At the firm level, well known proxies such as trading volume, turnover ratio, market price and market capitalization were used to measure investor sentiment. This study shows that the Saudi stock market is not statistically affected by macroeconomics factors, and that it is strongly impacted by investor sentiments. In order to quantitatively assess the relationship between investor sentiment and market returns, I used ordinary least square econometric (OLS) regression methodology is implemented to statistically assess investor sentiment in Tadawul index returns.

Keywords

Tadawul, Investor Sentiment, OLS, Daily Index Returns, Efficient Market


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