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Title: Investor attention and sentiment
Author: Wang, Jessica Yichun
ISNI:       0000 0004 5371 3776
Awarding Body: University of East Anglia
Current Institution: University of East Anglia
Date of Award: 2015
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Investor sentiment and attention are often linked to the same non-economic events making it difficult to understand why and how asset prices are affected. This thesis disentangles these two potential drivers of market behaviour by studying how investors react to sports outcomes, weather conditions and merger and acquisition announcements. Firstly, a new dataset of medals for major participating countries and sponsor firms over four Summer Olympic Games is analysed. Results show that although Olympic success does not lead to abnormal stock returns, subsequent market activity is reduced substantially. In the US, for example, trading volume (realised volatility) during Olympics is over 24% (46%) lower than usual while gold medal awards lead to a further decrease over the next trading day. These findings are in line with recent theories and evidence related to investor inattention but cannot easily be explained on the basis of sentiment. Analysis of data from online search volumes and surveys measuring investor sentiment, also suggest that the market impact of the Olympics is linked to changes in attention. I demonstrate that the statistical regularities can be exploited by simple volatility trading strategies in the US to produce significant risk adjusted profits. Secondly, I study the relationship between weather and stock market activity using a new perspective that does not rely solely on investor mood. I argue that bad weather can increase the productivity of investors by making them more focused on trading and less concerned about other leisure activities. This allows me to explain the empirical finding of higher trading activity on rainy days for a sample of 33 international stock markets. In line with previous literature, I confirm that particularly bad weather conditions which create inconvenience to market participants, such as snow, have the opposite effect by reducing productivity and trading volume. Finally, I find evidence that weather has a nonlinear effect on market activity. Thirdly, I explore if the market reaction to M&As in the US is governed by attention or sentiment. I find that attention, as proxied by online abnormal search volume, decreases significantly before announcements and then increases dramatically on the event date. The high level of attention diminishes shortly after. I also investigate whether the abnormal search volume surrounding the event date affects stock prices. The results suggest that the resolved uncertainty before the announcement date is incorporated into price discovery shortly after the announcement as the learning capacity of investors constrains the information processing speed in a bid to adjust the investment decisions.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available