Investor sentIment In IndIa: a survey

sanjay sehgal, G.s. sood and namita rajput

In this paper we examine definitional aspect of Investor Sentiment, the key economic, market and regulatory factors that influence investor sentiment and the relationship between investor sentiment and market performance. There seems to be no clear consensus on the concept of investor sentiment and hence any meaningful definition ought to be inclusive and fluid. The important economic factors highlighted in the work are: Real GDP, Corporate Profits, Rate of Inflation, Level of Interest Rate, and Liquidity in the Economy. The market based factors that can be linked to Investor Sentiment are: Put Call Ratio, Advance Decline Ratio, Earning Surprises, P/E Ratio, and Price to Book Value. The regulatory framework of a financial market does seem to have a strong bearing on investor sentiment especially the legal provisions relating to corporate governance and Grievance Redressal Mechanism. Most respondents believe that investors sentiment and market returns are bilaterally co-related. Our findings are largely in conformity with recent studies for other capital markets. These findings can be used to develop a comprehensive Investor Sentiment Index for India and hence have significant implications for investors, market intermediaries and financial regulators. Key words: Investor Sentiment, Market Sentiment, Market Performance, Asset Pricing, Risk Appetite

IntroduCtIon

entiment prevailing in the capital markets is a critical driver of the economy as it influences the business cycle and financial fluctuations in an economy. Investor Sentiment translates into investor confidence or lack of it and acts as a proxy for collective investor behaviour and affects the stock market. There is a growing body of both theoretical and empirical literature that examines the role of investor sentiment and its implications for financial markets and institutions. This literature has improved our understanding of some financial anomalies documented in prior work, such as the predictability in stock returns, excessive trading volatility and evidence on investors under or over reaction to corporate announcements. As a result, contemporary research explores the drivers of their behaviour, trading patterns and implications for market efficiency. However, most evidence remains controversial, at best, and the debate about sources of investor sentiment and the importance of sentiments impact on asset prices is still continuing (Ronald Domingues, 2008).

As the volume of studies that use investor sentiment to understand shifts in asset prices grows, so does the variety of investor sentiment measures. Dennis and Mayhew (2002) used the Put-Call Ratio, Randall, Suk and Tully (2003) used Net Cash Flows into Mutual Funds, Lashgari (2000) used the Barrons Confidence Index, Baker and Wurgler (2006) used the Issuance Percentage, Whaley (2000) used the Market Volatility Index (VIX) popularly called as Investor Fear Gauge, and Kumar and Persaud (Is the Name correct?) (2002) employed the Risk Appetite Index (RAI). Traditional research on asset pricing has focused on firm-specific and economy-wide factors that affect asset prices. Recently, the finance literature has turned to non-economic factors such as investor sentiment as possible determinants of asset prices. Some researchers (Eichengreen and Mody, 1998) suggest that a change in one set of asset prices may change investor sentiment, thus triggering changes in a seemingly unrelated set of asset prices, especially in the short run, giving rise to pure contagion.

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Fisher and Statman (2000) and Baker and Wurgler (2006) have also recognised that investor sentiment may be an important component of the market pricing process. In fact, some studies (Baek, Bandopadhyaya and Du (2005) suggest that shifts in investor sentiment may explain short-term movements in asset prices better than any other set of fundamental factors. The present work involving investor survey in India is motivated by controversial and inadequate research on the subject. This is even more pertinent in the light of the fact, that emerging markets such as India are expected to be impacted more by investor sentiment and hence exhibit higher volatility compared to matured markets. In this paper, we attempt to trace the important economic, market and regulatory factors affecting investor sentiment in India. revIeW oF LIterature The subject of investors protection has attracted the attention of a number of researchers internationally as well as in India. In what follows a brief review of literature in the subject is carried. The studies reviewed are divided into those carried in the developed markets such as the US and the UK and those carried in emerging markets like India. William Mahoney (1992) provides a comprehensive review of the relationship between shareholders and the board of directors and describes the powers and influence that various types of shareholders can exert on the boards. Porteba and Samwich (1995) and Morci, Shleifer and Vishny (1990) conclude that people use stock market as an indicator of future labor income. This theory postulates that growing stock market leads people to believe that economy will flourish and cause a wealth effect thereby increasing investor confidence level which will bring forth a shift in stock market wealth. Matsuaska and Sbordone (1995) find that investor confidence does in fact have a positive correlation with Gross National Product (GNP). The conclusion that investor confidence plays an important role in the business cycle gives them a reason to believe that investor confidence has a strong relationship with the stock market as well. Otoo (1999) finds the influence of stock prices on consumer confidence and found positive effects, while the opposite relationship was not true. Chopin and Darrat (1999) concluded that the investor sentiment does contain some strong predictive power for some macro-economic variables. Poterba (2000) explains that there is a direct implication of investor sentiment on international asset pricing models of institutional and individual investors in developed and emerging markets. Baker M. and Wurgler J. (2003) examine how investor sentiment
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affects the cross-section of stock returns. Theory predicts that a broad wave of sentiment will disproportionately affect stocks whose valuations are highly subjective and are difficult to arbitrage. When sentiment is low, subsequent returns are relatively high on smaller stocks, high volatility stocks, unprofitable stocks, non-dividendpaying stocks, extreme-growth stocks, and distressed stocks. This is consistent with an initial under pricing of these stocks. When sentiment is high, on the other hand, these patterns attenuate or fully reverse. XU J., (2004) explicitly addresses the performance of actively managed mutual funds conditioned on investor sentiment. Almost all fund size quintiles subsequently outperform the market when sentiment is low, while all of them under perform the market when sentiment is high. He further shows that the impact of investor sentiment on fund performance is mostly due to small investor sentiment. These findings were in line with the findings of the study carried by Gruber (1996). The pattern of decreasing returns to scale in mutual funds is fully reversed when sentiment is high as documented by Chen, Hong, Huang, and Kubik (2003). The pattern persists and is more pronounced when sentiment is low. Cliff and Brown (2005) found that the link between asset valuation and investor sentiment is the subject of considerable debate. If excessive optimism drives prices above intrinsic values, periods of high sentiment should be followed by low returns, as market prices revert to fundamental values. Using survey data on investor sentiment, they provide evidence that sentiment affects asset valuation. Market pricing errors implied by an independent valuation model are positively related to sentiment. Future returns over multiyear horizons are negatively related to sentiment. Denys (2005), using sentiment betas, tested Hard-toValue, Difficult-to-Arbitrage (HV-DA) hypothesis. The hypothesis postulated that investor sentiment affects some stocks more than others due to the differences in firm characteristics. It was found that stocks with a high sentiment beta are smaller, more volatile, and have greater short sale constraints with a lower dividend yields. Such stocks do not earn higher average returns in the shortrun, but appear to require a premium over the long-run. According to Baker, Wurgler, (2006), and Baker, Wurgler (2007), broad waves of investor sentiment should have larger impact on securities that are more difficult to value and to arbitrage. Consistent with this intuition, we find that when an index of investor sentiment is low, the small, young, high volatility, unprofitable, non-dividend-paying, extreme growth, and distressed stocks earn relatively
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higher subsequent returns. When sentiment is high, the aforementioned categories of stocks earn relatively lower subsequent returns. Johnsone, Lei, Lin, Sanger (2006) related the information contained in the trend in trading volume to investor sentiment, and investigated its ability to predict stock returns. Using the change in trading volume per unit of time as a measure of investor sentiment for individual stocks, they documented a negative and significant cross-sectional relation between trading volume trend and future stock returns. This relation is dynamic and holds after controlling for several liquidity measures, return momentum and other possible determinants of expected returns. In Indian context, Gupta (1991) conducted first comprehensive study on the profile, perceptions and preferences of small investors followed by a series of studies conducted by Securities and Exchange Board of India (SEBI). Shankar Acharya Committee (1998) concluded that most of the companies enjoy little credibility with investors. The situation is not much different today despite a corporate governance code framed by SEBI. That is why investors generally go for Government related securities and do not trust corporate securities howsoever superior they might be. Singh and Tripathi (2001) found that most of the mutual fund (MF) investors were not satisfied with the performance of their mutual fund schemes. This was particularly the case with equity schemes and the investors of public sector mutual funds in general. Investors were not aware of the risk inherent in Mutual Fund investments and expected them to generate risk free returns. They preferred National Savings Certificates (NSCs), Public Provident Fund (PPF) and MF schemes in the descending order of preference with the least preferred financial assets being debentures, post office schemes and balance funds. Mitra (2001) in its report on investor protection emphasised the need for a specific Act to protect investors interests. The committee wanted SEBI to be the only regulatory authority with the wide ranging powers of investigation and prosecution. Gupta L.C., Gupta C.P, Jain Naveen (2001) criticised the move of depositories to change fee structure from ad-valorem to flat rate basis. Such a move was considered anti-small investors since it will increase the burden of DEMAT cost for small investors while big investors and market operators will stand to gain. Making dematerialisation compulsory was also criticised by them since the same has not been made compulsory even in the developed markets like the US. Haldea (2003) argued that the small investors, recognised as the backbone of the capital market, are

being kept out of participation in public issues due to the misplaced policies. His study revealed that over the last four years only a very small percentage of the total capital was offered to small investors in public issues. Most of the studies in India found that majority of shareowners were dissatisfied with the supply of abridged balance sheets and information provided to investors at the time of making new issues and therefore relied more on media sources. Investors have little trust in companies and therefore preferred to invest in government schemes and other safer modes of investments. Psychological and sociological factors dominated over economic factors while investing in stock markets. Survey of literature reveals that, the nature of relationship between Investor Sentiment and stock market returns is debatable. Changes in the stock market influence consumption and investors confidence and the sentiment in turn is expected to influence stock returns. data and metHodoLoGy A survey was conducted involving various stakeholders in financial sector like Investment bankers, brokers, market regulators, equity analysts, corporate fund managers etc. Convenience Sampling was adopted giving adequate representation to different stakeholders. Out of the total number of 160 circulated questionnaires only 112 responses could finally be elicited which were than analysed on the basis of various attributes. The sample respondents comprised of 34 brokers and sub-brokers, 10 equity analysts/wealth managers/portfolio managers, 14 corporate finance managers, 12 investment bankers, 24 mutual fund managers, 10 FII representatives, and 8 market regulators. methodology Methodology used was structured questionnaire drafted with critical inputs from five subject experts. Questionnaire validation was done by five independent subject and market experts to ensure appropriateness and none overlapping of question structure. The questionnaire had closed ended questions and gave relevant range of options to the respondents (for questionnaire see Annexure 1). Responses were analysed using e-questionnaire and those delivered physically using trained investigators. In the questionnaire, five attributes were tested for analysing respectively the definitional aspects of investor sentiment, economic and market factors that influence sentiment, relationship of regulatory framework and the relationship between investor sentiment and stock returns.
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survey FIndInGs The survey mainly aimed at identifying the factors that have a decisive bearing on investor sentiment as also understanding the relationship between investor sentiment and stock market performance. The sample responses were analysed using Data Representation Technique. This analysis will help in developing an Investor Sentiment Index which will be a useful tool in studying the relationship of market performance and investor sentiment and its understanding is of crucial importance in designing effective policy. Definitional Aspect In view of the divergent views on the very concept of the term investor sentiment, it was considered appropriate to ask different stakeholders, as to what is the most appropriate way of defining investor sentiment. The questionnaire offered six specific definitions shortlisted after a thorough review of literature on the subject. Besides the concerned respondents were also given the freedom to define the concept the way they deem fit. An analysis of the responses reveals that definition V1, understanding of investor behaviour that influences stock market activity was found to be the most favored one with 30.34 percent of the respondents considering it to be the most appropriate way of defining the investor sentiment. This was followed by definition V, a quantitative measure to gauge the levels of optimism or pessimism present in the market with 19.64 percent of respondents opting for the same. See Table 1.
Table 1: The Rating of Definitions ranK I II III IV V VI deFInItIon DEFINITION NO. I DEFINITION NO. II DEFINITION NO. III DEFINITION NO. IV DEFINITION NO. V DEFINITION NO. VI ratInG (%) 10 13 9 18 20 30 Exhibit 1: Definitional Aspect of Investor Sentiment

considered most important and a weight of one to the factor considered least important. The economic factors taken into consideration included real GDP, employment levels, corporate profits, rate of inflation, level of interest rate, net foreign investment flows, liquidity in the economy and so on. A factor getting less than 40 percent responses were not considered for further analysis. See Table 2.
table 2: details of responses and average scores economic Factors Real GDP EML Level CRP Profit Rate of Inflation Level of INT Rate Net FII Flows Liquidity in the Economy Consumer Spending Household Construction Activity Oil Price Shocks Exchange Rate Fluctuations Fiscal Deficit Market Capitalisation Official Statement of Govt. Other Factors See Exhibit 2 no. of responses 82 66 68 100 88 98 90 84 58 86 20 34 2 14 average score 8.17 5.18 7.12 6.6 6.14 5.53 6.53 5 5 4 4 4.35 4 4

See Exhibit:

economic Factors Having operationalised the definition, the survey further studied the impact of various economic factors on investor sentiment. The respondents were asked to rank various economic factors in order of importance on a ten point scale (from 1 to 10) giving a weight of 10 to the factor
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Most important economic factors in order of importance by average scores attained were, Real GDP (number of responses 82, Average Score 8.17), Corporate Profits (number of responses 68, Average Score 7.12),
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exhibit 2: economic Factors affecting Investor sentiment

Rate of Inflation (number of responses 100, Average Score 6.6), Level of Interest Rate (number of responses 88, Average Score 6.6), and Liquidity in the Economy (number of responses 90, Average Score 6.3). market Factors

The survey further identified the market factors that influence investor sentiment. The factors mainly included, put call ratio, advance decline ratio, margin money requirement, listing premium on IPOs, performance of small cap stocks, cash position of mutual funds, closed end funds discount, new high and lows, opinion of investment analysts, credit balance with brokers, earning surprises, P/E ratio, price to book value, stock index performance, momentum stock behaviour, yield on all bonds and others. The respondents were asked to rank various market factors in order of importance on a ten point scale as was done in the case of economic factors. The factors with responses of less than 40% were not considered. See Table 3. Of the remaining factors, most important were Put Call Ratio, Advance Decline Ratio, Earning Surprises, P/E Ratio, and Price to Book Value as shown in Exhibit 5. regulatory aspects The survey also made an attempt to establish whether there exists any relationship between regulatory aspects and investor sentiment. Besides asking the respondents of their opinion, they were given choices to select as
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exhibit 3: most Important economic Factors

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table 3: details of responses and average scores of market Factors market Factors Margin Money Requirement Listing Premium On Ipo Performance Of Small Capital Stock Cash Position Of Mutual Fund Closed End Fund Discount New High And Lows Opinion Of Investment Analyst Credit Balance With Brokers Earning Surprises P/E Ratio Price To Book Value Stock Index Performance Momentum Stock Behaviour Yield On All Bonds Other Factors See Exhibit 4 no of responses 38 38 29 24 13 34 33 15 29 38 25 40 27 13 average scores 4.5 5.5 4.2 4.6 4 4.8 4.7 4.4 5.6 5.6 5.4 7 5 6

to which of the regulatory aspects are more important that may have any bearing on investor sentiment. About 11 percent of the Respondents said that regulatory aspects did not influence the investor sentiment. Of the remaining 89 percent about 68 percent considered regulations regarding corporate governance influencing the investor sentiment and only 32 percent opted for grievance redressal mechanism as a regulatory aspect of any bearing. See Table 4. According to the survey, 11% of the respondents said that regulatory aspect did not influence investor sentiments. See Exhibit 6. Investor sentiment and stock returns Relationship between investor sentiment and stock returns were analysed. The survey also made an attempt to establish whether there exists any relationship between stock market returns and investor sentiment. Besides asking the respondents of their opinion, they were given choices to statements showing relationship between stock

exhibit 4: market Factors affecting Investor sentiment

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exhibit 7: regulatory Factors affecting Investor sentiment

exhibit 5: most Important market Factors affecting Investor sentiment Table 4: Regulatory Factors Influencing Investor Sentiments regulatory Factors rating 68% 32% Not Significant Not Significant Not Significant

However, 17.86 percent of the respondents stated that high investor sentiment leads to high future returns, with 4.46 percent considered that high investor sentiment leads to low future returns. The results are therefore clear that both investor sentiment and stock returns influence each other. See Table 5.
table 5: Investor sentiment and stock returns statements High Investor Sentiment Leads io High Future Returns High Investor Sentiment Leads to Lowfuture Returns Past Returns Determine the Current Investor Sentiments Both Investor and Stock Returns Influence Each Other See Exhibit 8 rating 10% 5% 25% 62%

Regulation of Corporate Governace Grievance Mechanism Redressal Investor Education and Activism Action Initiated Against Defaulters Other Factors

Strenghtening of Market Surveillance System Not Significant

relevance of regulatory Factors

exhibit 6: relevance of regulatory Factors affecting Investor sentiment

market and investor sentiment. All the respondents were of the opinion that there exist relationship between the two with difference in extent and magnitude. Out of total responses, 55.36 percent of the respondents were of the opinion that investor sentiment and stock returns influence each other, whereas 22.32 percent opined that past returns determine current investor sentiment.

exhibit 8: Investor sentiment and stock returns

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summary and ConCLusIons In this study an attempt has been made to establish a relationship between certain factors such as economic, market, regulatory etc with the investor sentiment besides knowing whether any relationship exists between investor sentiment and stock returns. A survey was conducted to obtain the information from different stakeholders in the market system such as institutional investors, market intermediaries and market regulators to understand these relationships besides examining the definitional aspects of investor sentiment. The critical factors were ranked on the basis of relative importance (as shown by ranking of the respondents) within each category separately. There is no clear consensus among participants about the concept of investor sentiment. However, about fifty percent of them feel that investor sentiment implies Understanding of investor behaviour that influences stock market activity and a quantitative measure to gauge the levels of optimism or pessimism present in the market. The key economic factors that impact investor sentiment are real GDP, corporate profits, rate of inflation, level of interest rates and liquidity in the economy, while the market based factors are put call ratio, advance decline ratio, earning surprises, P/E ratio and price to book value. Majority of respondents believe that better regulatory framework does influence Investor Sentiment especially with regard to legal provisions relating to corporate governance and investor grievance redressal mechanism. Most of the respondents also feel that investor sentiment and market returns are highly correlated and in fact influence each other. Investor Sentiment approach has a number of challenges characterising and measuring uninformed need for investor sentiment. Much needs to be done in this framework since the potential payoffs of an improved understanding of investor sentiment are substantial. Results of this survey will be a key input for construction of investor sentiment index which could be related with the trading decisions. This will be an important input to capital budgeting decisions and their interpretations. Since it has been seen that sentiment affects the cost of capital, it may therefore have real consequences for the allocation of corporate investments across safer and more speculative firms. The results have important policy and optimal investment decision-making implications. The evidence presented is relevant from the perspective of money managers (professional investors), whose purpose is to provide investors with an expected rate of return on their investments, and heads of firms (CEOs) whose compensations could be tied to the firms stock
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performance. Additionally from a welfare perspective, a better understanding of the sentiment traders and arbitrageurs behaviour may support regulation, taxation or education of these investors to ameliorate adverse economic effects. This information will also be important to regulators as they have to realign their policies according to global financial models. reFerenCes
Amihud, Yakov, and Mendelson H. (1986), Asset Pricing and the Bid-Ask Spread, Journal of Financial Economics, 17.(What is the Issue Number?), pp. 223-49. Baker, M. and Wurgler, J. (2000), The Equity Share in New Issues and Aggregate Stock Returns, Journal of Finance, 55, pp. 2219-57. Baker, M. and Wurgler, J. (2003), Investor Sentiment and the Cross-Section of Stock Returns Working Paper NBER 10449. Baker, M. and Wurgler, J. (2006), Investor Sentiment and the Cross-Section of Stock Returns, The Journal of Finance, 61, pp. 1645-80. Baker, M. and Wurgler, J. (2007), Investor Sentiment in the Stock Market, Journal of Economic Perspective, 21, pp. 129-51. Brown, G.W. and Cliff, M.T. (2004), Investor Sentiment and the Near-Term Stock Market, Journal of Empirical Finance, 11.1, pp. 1-27. Brown, G.W. and Cliff, M.T. (2005), Investor Sentiment and Asset Valuation, Journal of Business, 78.2, pp. 405-40. Brown, S., Goetzmann, W., Hiraki, T., Shiraishi, N., and Watanabe, M. (2003), Investor Sentiment in Japanese and U.S. Daily Mutual Fund Flows, Working Papers NBER- 9470, Yale university. Baek, I-M., Bandopadhyaya A. and Du, C. (2005), Determinants of Market Assessed Sovereign Risk: Economic Fundamentals or Market Risk Appetite? Journal of International Money and Finance, 24.4, pp. 533-48. Chopin, M.C., and Darrat A.F. (2000), Can Consumer Attitudes Forecast the Macro Economy? American Economist Spring, pp. 34-42. Chen, J., Hong , H., Huang, M., and Kubik, J.D. (2004), Does Fund Size Erode Mutual Fund Performance? The Role of Liquidity and Organisation, American Economic Review, 94.5, pp. 1276-1302. Denys, G. (2003), Investor Sentiment, Firm Characteristics and Institutional Behaviour, Financial Analyst Journal, 59.64, pp. 26-35. Denys, G. (2005), Investor Sentiment, Firm Characteristics and Institutional Behaviour, Working Paper: Social Science Research Network (SSRN)-86244.
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Patrick, D. and Stewart, M. (2002), Risk-Neutral Skewness: Evidence from Stock Options, Journal of Financial and Quantitative Analysis, 37.3, pp. 471-93. Kenneth, F.L. and Statman, M. (2000), Investor Sentiment and Stock Returns, Financial Analysts Journal, 56.2, pp. 16-23. Kenneth, F.L. and Statman, M. (2003), Consumer Confidence and Stock Returns, Journal of Portfolio Management, 30.1, pp. 115-28. Milton, H. and Raviv, H. (1993), Differences of Opinion Make a Horse Race, Review of Financial Studies, 6, pp. 473-506. Gupta, L.C. (1991), Indian Share Owners: A Survey, Society for Capital Market Research and Development, New Delhi. Gupta, L.C. (1992), Stock Exchanges Trading in India, Society for Capital Market Research and Development, New Delhi. Brown, G.W. and Cliff, M.T. (2005), Investor Sentiment and Asset Valuation, The Journal of Business, 78.2, pp. 405-40. Gupta, L.C., Gupta, C.P., Jain, N. (2001), Indian Household Investment Preferences, Society for Capital Market Research and Development, New Delhi. Gruber, M.J. (1996), The Growth in Actively Managed Mutual Funds, Journal of Finance 51, pp. 783-810. Gregory, B.K., Kadle, C. and McConnell, J.J. (1994), Investor Sentiment and Asset Valuation, Journal of Business, 49.2, pp. 611-36. Indian Household Investor Survey (2005), The Challenging Market Environment, Investors Preferences, Problems, Policy Issues sponsored by Investor Education and Protection Fund, Ministry of Company Affairs, Government of India. Kumar, M.S. and Persaud, A. (2002), Pure Contagion and Investors Shifting Risk Appetite: Analytical Issues and Empirical Evidence, Journal of International Finance, 5.3, pp. 401-36. Karpoff, J.M. (1986), A Theory of Trading Volume, Journal of Finance 41, pp. 1069-87. Malek, L. (2000), The Role of TED Spread and Confidence Index in Explaining the Behaviour of Stock Prices, American Business Review, 18.2, pp. 9-11.

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Lee, C., Shleifer M.C.A. and Thaler, R.H. (1991), Investor Sentiment and the Closed-End Fund Puzzle, Journal of Finance 46. pp. 75-109. Matsusaka, J.G. and Sbordone, M.A (1995), Consumer Confidence and Economic Fluctuations. Economic Inquiry, 33, pp. 296-318. Neelamegam, R. and Srinivasan, R. (1998), Investor Protection: A Study on Legal Aspects, Raj Publications, Delhi. Otoo, M.W. (1999), Consumer Sentiment and the Stock Market, Board of Governors of the Federal Reserve System, Working paper series, FEDS Working Paper No. 99-60, Industrial Output Section. Poterba, J.M.( 2000), Stock Market Wealth and Consumption, Journal of Economic Perspectives, 14.2, pp. 99-118. Poterba, J.M., and Samwick, A. (1995), Stock Ownership Patterns, Stock Market Fluctuations, and Consumption, Brookings Papers on Economic Activity, 2, pp. 295-357. Johnsone, S.A., Lei ,L.C. and Sanger, C.G. (2006), Department of Finance, E.J. Ourso College of Business, Louisiana State University, Baton Rouge, Trading Volume Trend, Investor Sentiment, and Stock Returns , Version: April 27, 2006. Stoll, H.R. (1978), The Supply of Dealer Services in Securities Markets, Journal of Finance 33, pp. 1133-51. Domingues, R. (2008), Predictability of Daily Stock Market Returns Using Investor Sentiment Indicators, Masters Dissertation, Ibmec Business School, Brazil. Randall, M.R., Suk, D.Y. and Tully, S.W. (2003), Mutual Fund Cash Flows and Stock Market Performance, Journal of Investing, 12.1, pp. 78-81. Whaley, R.E. (2000), The Investor Fear Gauge, Journal of Portfolio Management, 26.3, pp. 12-17. Xu, J. (2004), Does Mutual Fund Performance Vary With Investor Sentiment?, University of Texas,. Working paper, SSRN,ID1030112 ,code327450. Zweig, M.E. (1973), An Investor Expectations Stock Price Predictive Model Using Closed-End Fund Premiums, Journal of Finance 28, pp. 67-78.

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anneXure 1 Questionaire Q.I: What do you understand by the term Investor Sentiment? 1. Human and social cognitive and emotional biases influencing economic decisions and thereby affecting market prices, returns and allocation of resources. 2. Rationality or lack thereof, of economic agents. 3. A measurement of the mood of a given investor or the overall investing public (either bullish or bearish). 4. A general term used to describe indicators that gauge investor attitudes towards the market. 5. A quantitative measure to gauge the levels of optimism or pessimism present in the market. 6. Understanding of investor behaviour that influences stock market activity. 7. Any other (please specify) Q.II: (a): In your opinion, does economic outlook influences investor sentiment. Yes/No (b): If yes, please tick and rank the ten most prominent economic indicators in the order of their importance or measures of economic outlook. 1. Growth in Real GDP 2. Employment levels 3. Aggregate corporate profits. 4. Rate of Inflation 5. Level of interest rates 6. Net FII flows 7. Liquidity in the economy 8. Consumer spending 9. Household Construction Activity 10. Oil Price shocks 11. Exchange rate fluctuations 12. Fiscal Deficit 13. Any other (please specify) Q.III: Tick and rank the ten most important market based indicators which influence the Investor Sentiment. 1. Put/Call Ratio 2. Advance/Decline Ratio 3. Margin Money Requirement. 4. Listing Premium on IPOs 5. Performance of Small Cap Stocks 6. Cash Position of MFs 7. Closed End Fund Discounts
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8. New Highs and Lows 9. Opinions of Investment Analysts 10. Credit Balance with Brokers 11. Earnings Surprises 12. PIE Ratio 13. Price to Book Value 14. Stock Index Performance 15. Momentum Stock Behaviour 16. Yield on Government Bonds/Yield on all Bonds 17. Any Other (please specify) Q.lv: (a) Is there any relationship between regulatory environment of financial markets and investor sentiment: Yes/No (b) If yes, tick the most important regulatory aspects that you think influence the Investor sentiment. 1. Regulations relating to corporate governance and corporate disclosures 2. Grievance Redressal Mechanism 3. Investors Education and Activism 4. Strengthening of Market Surveillance Systems 5. Actions initiated against defaulters 6. Any other (Please specify) Q.v: (a) Is there any relationship between investor sentiment and stock returns. Yes/No (b) If yes, tick the relationship you consider to be the most appropriate: 1. High investor sentiment leads to high future returns. 2. High investor sentiment leads to low future returns 3. Past returns determine current investor sentiment. 4. Both, investor sentiment and stock returns influence each other. 5. Any other (Please specify)

sanjay sehgal (sanjayfin15@yahoo.co.in) is Dean of the Faculty of Commerce and Business, University of Delhi. He has done his Ph.D in Finance from University of Delhi. He is a Post Doctoral Commonwealth Fellow from London School of Economics, UK. He has completed three major research projects and authored a book as well. He has written more than 40 research papers in leading national and international journals. G. s. sood (gssood@gmail.com) is Ph.D in Capital Markets from Department of Commerce, Delhi School of Economics, University of Delhi. He specialises in the areas like financial markets, financial services, investment banking, and investment analysis and capital markets. He is presently Associate Professor in the Department of Commerce at Shri Guru Nanak Dev Khalsa College, University of Delhi. He has to his credit over 30 research papers and articles published in refereed journals, financial newspapers and magazines. namita rajput (namitarajput@gmail.com) is Ph.D from Department of Commerce, Delhi School of Economics, University of Delhi, in the area of International Business. She is presently an Associate Professor in the Department of Commerce at Sri Aurobindo College (M), University of Delhi. She has been associated with a major research project of Ministry of Corporate Affairs in the area of Behavioural Finance (Investor Sentiments).

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