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The unidirectional relationship between consumer confidence and PSI-20 returns - The influence of the economic cycle

Neves,Maria Elisabete Duarte , Gonçalves,Luís Miguel Aragão Duarte , Ribeiro,Mario Joaquim Silva , Feiteira,Paulo Jorge Santiago , Viseu,Clara Margarida Pisco

ISLA — Instituto Politécnico de Gestão e Tecnologia

2016

ABSTRACT The aim of this paper is to determine the relationship between market sentiment and rates of return on the main Portuguese benchmark and verify whether this relationship is influenced by different economic cycles. Given the subjectivity inherent to the use of variables capturing investor sentiment, the Consumer Confidence Index (CCI) was used as a benchmark. To achieve the proposed objective, an analysis of time series stationarity, Pearson correlation, and Granger causality using the autoregressive vectors model was carried out, followed by the Least Squares Method with macroeconomic variables. The results obtained suggest a one-way relationship between stock market returns and the sentiment variable. In fact, in times of recession, investor pessimism induces linear behavior and the sentiment-return relationship is more evident. This article will thus be of interest both to the academic community, in providing a basis for future investigations, and to managers and investors, with regards to the perception that the predictability of returns will be easier in periods of recession.

Keywords

#consumer confidence index #PSI-20 #Financial markets #behavioral finance #economic cycle

Bibliographic Details

Publication Type Journal article

Publication Year 2016

Quartile (SCImago) Q3

Scopus Indexing Indexed source (via SCImago)

ISLA Authors & Affiliations

The unidirectional relationship between consumer confidence and PSI-20 returns - The influence of the economic cycle

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Bibliographic Details

ISLA Authors & Affiliations