Accounting and Auditing Studies

Accounting and Auditing Studies

The Moderating Effect of Investor Sentiment on and Stock Return's Mean-Variance Relationship

Document Type : Original Article

Authors
Mohamad Mohamadi 1
majid azimiyancheshmeh 2
Maryam Farhadi 2
Masoud Fuladi 2
1 PhD in Accounting, Department of Accounting, Mobrake Branch, Islamic Azad University, Isfahan, Iran
2 Assistant Professor, Department of Accounting, Mobarake Branch, Islamic Azad University, Isfahan, Iran
10.22034/iaas.2023.179241
Abstract
The problem of optimizing the mean-variance relationship of stock returns has become one of the important discussions in financial theory and a relatively popular measure for measuring risk. Choosing the mean-variance return of the investment portfolio is in search of the best allocation of wealth among various types of securities in order to achieve the optimal trade-off between the risk and the expected return of the investment in a fixed time horizon. The mean-variance trade-off in periods when investor sentiment is strong produces a negative correlation between stock returns and volatility changes, and the expected return of stock returns is positively related to the conditional variance of returns in periods when investor sentiment is weak. The aim of this research is to present a model based on investor sentiment and the average variance relationship of stock returns. The statistical population of this research consists of the companies accepted in the Tehran Stock Exchange, based on the systematic elimination method, 112 companies were selected as the sample size during the years 1394-1400. The method of collecting information is library and field. Data analysis was done using the multivariable regression model provided in the research with the help of Stata and Eviuse software. The results of the research hypotheses test showed that the relationship between the expected stock variance and the average stock return had a positive and significant relationship. According to the obtained results, it was observed that the future variance of stock returns obtained from the Garch method is strongly influenced by investor sentiment. The moderating effect of investor sentiment was such that it led to an increase in the positive effect of the expected future variance on the average stock. Therefore, the second hypothesis has been accepted. But the effect of the future unpredicted stock variance on the average stock return is extremely negative and is not influenced by investor sentiments. Therefore, the third hypothesis of the research is rejected.
Keywords
Investor Sentiment
Average Variance
Stock Returns
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Accounting and Auditing Studies
Volume 12, Issue 46
Summer 2023
Pages 89-114