Discussion Paper

No. 2013-58 | October 31, 2013
Sentiment Indices on Financial Markets: What Do they Measure?
(Published in Special Issue Economics, Psychology and Choice Theory)

Abstract

Sentiment indices based on investor sentiment surveys attempt to measure the stock market sentiment. The literature on these indices focusses mainly on whether investor sentiment influences the financial markets or not. But the term “sentiment” has never been defined in the literature. Therefore it is unclear what is measured by sentiment indices, whether it is really sentiment or something different.
This paper closes this gap in the literature by using psychological definitions about feelings to explain what might be meant by “market sentiment”. It shows how useful these definitions are with data from the German sentiment index “Sentix”.
The paper contributes to the current discussion in three ways: 1. It presents a simple concept of sentiments in general. 2. It relates short and long term sentiment indices to two distinct parts of sentiments, emotion and mood. 3. It extracts two factors representing investor emotion and mood across all markets in the dataset. These results are stable across markets and model specifications in the Sentix dataset.
 

JEL Classification

G02 G14

Cite As

Sven-Kristjan Bormann (2013). Sentiment Indices on Financial Markets: What Do they Measure?. Economics Discussion Papers, No 2013-58, Kiel Institute for the World Economy. http://www.economics-ejournal.org/economics/discussionpapers/2013-58

Assessment



Comments and Questions


Anonymous - Referee Report 1
January 21, 2014 - 08:36

see attached file


Sven-Kristjan Bormann - Answer to Referee Report 1
February 11, 2014 - 17:28

See attached file


Anonymous - Referee Report 2
January 27, 2014 - 09:06

see attached file


Sven-Kristjan Bormann - Answer to Referee Report 2
February 11, 2014 - 17:38

see attached file


Sven-Kristjan Bormann - Revised Version
August 06, 2014 - 10:08

see attached file