From confidence to collapse? How confidence level has affected stock returns and return volatility in Finla
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School of Business |
Bachelor's thesis
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Authors
Date
2023
Department
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Mcode
Degree programme
Rahoitus
Language
fi
Pages
25
Series
Abstract
This thesis investigates the relationship between consumer and business sentiment and subsequent stock market returns and return volatility in the Finnish stock market between 2005-2022. Two sentiment indicators, Consumer Confidence Indicator and Economic Sentiment Indicator, were OLS-regressed together with several control variables to isolate the effects of sentiment. In addition to investigating the stock market at an aggregate level I divide the stocks into three size categories to test whether the returns and volatility of companies of different market capitulations are impacted differently by the sentiment level. Regarding the returns of the subsequent month after the release of the sentiment data, I find the coefficients of the sentiment indicators to be insignificant. This contradicts findings of some of the previous literature conducted in foreign markets, which have suggested there to exist a negative relationship between optimism and subsequent returns. Regarding the volatility of the subsequent month, I find the coefficients of the sentiment indicators to be negative and highly significant at the 1% level on OMXH, Mid-Cap and OMXH25 indices but not on the small-cap index.Description
Thesis advisor
Keloharju, MattiKeywords
sentiment, confidence Indicator, stock market return, stock market volatility