Publication

This paper studies the causal relationship between investors' mood and subsequent stock price changes. To do this, the author uses weekly survey data on short- and medium-term sentiment of German investors. A tri-variate vector autoregression (VAR) for short-run sentiment, medium-run sentiment and stock index returns allows to reject exogeneity of returns. Depending on the chosen vector autoregression (VAR) specification, returns are found to either follow a feedback process caused by medium-run sentiment, or form a simultaneous system with the two sentiment measures.