Analyzing the effect of investors' sentiments on the volatility of portfolio returns of companies with contrasting pricing characteristics

Document Type : Research Paper

Authors

1 Department of Accounting, Faculty of Administrative Sciences and Economics, University of Isfahan, Isfahan, Iran

2 Department of Economics, Faculty of administrative sciences and economics, University of Isfahan, Isfahan, Iran

3 Department of Accounting, Faculty of administrative sciences and economics, University of Isfahan, Isfahan, Iran

Abstract

The purpose of this research was to analyze the impact of investors' sentiments on the volatility of portfolio returns of companies with difficult pricing characteristics compared to their opposite companies. Information asymmetry leads to disagreements about pricing. Companies with difficult pricing are companies that, is not possible to determine their price correctly. Investors are expected to be more involved in the emotional climate than the shares of these companies For this purpose, hypotheses were designed. A sample of 173 companies was selected from the TSE in 2011 and 2023 and the hypotheses were investigated through the formation of a stock portfolio with monthly data. Three criteria were used to determine companies with difficult pricing characteristics, including size, book-to-market ratio, and illiquidity. The findings showed that investors' sentiments had an asymmetric effect on the volatility of portfolio returns of companies with difficult pricing characteristics and conflicting companies. So that the measures of the ratio of book value to market value and illiquidity show the effect of emotions on the portfolio of companies with difficult pricing more than the opposite companies, while the size measure shows this effect for the portfolio of companies with opposite pricing more than the companies with difficult pricing. . Therefore, it can be concluded that at least for companies with high illiquidity and high book value to market ratio, investors' emotions have a double effect on yield volatility, and investors should be cautious and take into account the emotional atmosphere in the trading of such stocks.

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Journal of Accounting Advances
Volume 16, Issue 1
May 2024
Pages 111-141

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History

  • Receive Date: 06 November 2023
  • Revise Date: 07 September 2024
  • Accept Date: 10 November 2024

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