We examine the relationship between sentiment and Mexican stock market returns. Results suggest a positive dynamic relationship between rational Mexican sentiment and equity market returns. Results also reveal a spillover of US sentiment on the return-generating process of the Mexican stock market that is distinct from domestic sentiment. This effect may be attributed to close economic ties and ease of capital flows between the two countries. Additionally, we find that rational sentiment and market returns are inversely related to the Peso/US dollar exchange rate. Our findings suggest that sentiment is a significant risk factor in the Mexican stock market.
AbugriB. A. (2008). Empirical relationship between macroeconomic volatility and stock returns: Evidence from Latin American markets. International Review of Financial Analysis, 17(2), 396–410.
2.
ApartsinY., MaymonY., CohenY., & SingerG. (2013). Nationality and risk attitude: Testing differences and similarities of investors’ behavior in selected financial markets. Global Finance Journal, 24(2), 114–118.
3.
AsemE., ChungJ., CuiX., & TianG. Y. (2016). Liquidity, investor sentiment and price discount of SEOs in Australia. International Journal of Managerial Finance, 12(1), 25–51.
4.
BakerM., & WurglerJ. (2006). Investor sentiment and the cross-section of stock returns. Journal of Finance, 61(4), 1645–1680.
5.
BakerM., & WurglerJ. (2007). Investor sentiment in the stock market. Journal of Economic Perspectives, 21(2), 129–151.
6.
BakerM., WurglerJ., & YuanY. (2012). Global, local, and contagious investor sentiment. Journal of Financial Economics, 104(2), 272–287.
7.
BarberB. M., OdeanT., & ZhuN. (2009). Systematic noise. Journal of Financial Markets, 12(4), 547–569.
8.
BrownG. W., & CliffM. T. (2004). Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1–27.
9.
CanbaşS., & KandirS. Y. (2009). Investor sentiment and stock returns: Evidence from Turkey. Emerging Markets Finance and Trade, 45(4), 36–52.
10.
ChanS. Y., & FongW. M. (2004). Individual investors’ sentiment and temporary stock price pressure. Journal of Business Finance & Accounting, 31(5–6), 823–836.
11.
ChuiA. C., TitmanS., & WeiK. J. (2010). Individualism and momentum around the world. Journal of Finance, 65(1), 361–392.
12.
CurciR., GriebT., & ReyesM. (2003). Intertemporal covariance and correlation stability in Mexican stock returns. Journal of Emerging Markets, 8(1), 37–48.
13.
De BondtW. F., & ThalerR. (1985). Does the stock market overreact?Journal of Finance, 40(3), 793–805.
14.
De LongJ. B., ShleiferA., SummersL. H., & WaldmannR. J. (1990). Noise trader risk in financial markets. Journal of Political Economy, 98(4), 703–738.
15.
DiamandisP. F. (2008). Financial liberalization and changes in the dynamic behaviour of emerging market volatility: Evidence from four Latin American equity markets. Research in International Business and Finance, 22(3), 362–377.
16.
DickeyD. A., & FullerW. A. (1979). Distribution of the estimators for autoregressive time series with a unit root. Journal of the American Statistical Association, 74(366a), 427–431.
17.
FamaE. F. (1970). Efficient capital markets: A review of theory and empirical work. Journal of Finance, 25(2), 383–417.
18.
GrisseC. (2009). Are expectations about economic activity self-fulfilling? An empirical test. Mimeo. New York, NY: Federal Reserve Bank of New York.
19.
HeathE. B., & KopchakS. J. (2015). The response of the Mexican equity market to US monetary surprises. Journal of Emerging Market Finance, 14(2), 87–111.
20.
HerreraM. J., & LockwoodL. J. (1994). The size effect in the Mexican stock market. Journal of Banking & Finance, 18(4), 621–632.
21.
HoC., & HungC. H. (2009). Investor sentiment as conditioning information in asset pricing. Journal of Banking & Finance, 33(5), 892–903.
22.
HofstedeG. (2001). Culture’s consequences: Comparing values, behaviors, institutions, and organizations across nations (2nd ed.). Beverly Hills, CA: SAGE.
23.
HsingY., BuddenM. C., & PhillipsA. S. (2011). Macroeconomic determinants of the stock market index for a major Latin American country and policy implications. Business and Economic Research, 2(1). Retrieved from http://dx.doi.org/10.5296/ber.v2i1.1152
24.
KlingG., & GaoL. (2008). Chinese institutional investors’ sentiment. Journal of International Financial Markets, Institutions and Money, 18(4), 374–387.
25.
KwiatkowskiD., PhillipsP. C., SchmidtP., & ShinY. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root?Journal of Econometrics, 54(1), 159–178.
26.
LeeW. Y., JiangC. X., & IndroD. C. (2002). Stock market volatility, excess returns, and the role of investor sentiment. Journal of Banking & Finance, 26(12), 2277–2299.
27.
LeeC., ShleiferA., & ThalerR. H. (1991). Investor sentiment and the closed-end fund puzzle. Journal of Finance, 46(1), 75–109.
28.
LeeY. H., TuckerA. L., WangD. K., & PaoH. T. (2014). Global contagion of market sentiment during the U.S. subprime crisis. Global Finance Journal, 25(1), 17–26.
29.
LeroyS. F., & PorterR. D. (1981). Stock price volatility: Tests based on implied variance bounds. Econometrica, 49(97), 113.
30.
Lopez-HerreraF., & OrtizE. (2011). Dynamic multibeta macroeconomic asset pricing model at NAFTA stock markets. International Journal of Economics and Finance, 3(1), 55–68.
31.
Lopez-HerreraF., OrtizE., & de JesusR. (2012). Long memory behavior in the returns of the Mexican stock market: Arfima models and value at risk estimation. International Journal of Academic Research in Business & Social Sciences, 2(10), 113–133.
32.
LoughranT., & RitterJ. R. (1995). The new issues puzzle. Journal of Finance, 50(1), 23–51.
33.
LuxT. (2011). Sentiment dynamics and stock returns: The case of the German stock market. Empirical Economics, 41(3), 663–679.
34.
OrtizE., CabelloA., & de JesúsR. (2006). Long-run inflation and exchange rates hedge of stocks in Brazil and Mexico. Global Economy Journal, 6(3), 1–31.
35.
Perez-ListonD. & HuertaD. (2012). Does investor sentiment affect Mexican stock market returns and volatility?Global Journal of Finance and Economics, 9(2), 121–132.
36.
PesaranH. H., & ShinY. (1998). Generalized impulse response analysis in linear multivariate models. Economics Letters, 58(1), 17–29.
37.
RodenP. F., Lizola-MargolisP., & SalgadoP. M. (2012). Contagion between the Bolsa Mexicana de Valores and NYSE during the credit crunch-financial panic of 2008. Journal of International Business Research, 11(S1), 59.
38.
SaadeS. (2015). Investor sentiment and the underperformance of technology firms initial public offerings. Research in International Business and Finance, 34, 205–232.
39.
SayimM., & RahmanH. (2015). An examination of U.S. institutional and individual investor sentiment effect on the Turkish stock market. Global Finance Journal, 26, 1–17.
40.
SchmelingM. (2009). Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408.
41.
ShillerR. J. (1981). Do stock prices move too much to be justified by subsequent changes in dividends?American Economic Review, 71(3), 421–436.
42.
SimsC. (1980). Macroeconomics and reality. Econometrica, 48(1), 1–48.
43.
SiriopoulosC., & FassasA. (2012). An investor sentiment barometer—Greek implied volatility index (GRIV). Global Finance Journal, 23(2), 77–93.
44.
StatmanM., ThorleyS., & VorkinkK. (2006). Investor overconfidence and trading volume. Review of Financial Studies, 19(4), 1531–1565.
45.
Tovar-SilosR. (2012). Exchange rates and stock market returns in Mexico: A Markov regime-switching approach. International Research Journal of Applied Finance, 3(7), 1010–1019.
46.
TrevinoM. D. L. (2011). Time varying arbitrage pricing factors in the Mexican stock market. Retrieved from SSRN: https://ssrn.com/abstract=1929141orhttp://dx.doi.org/10.2139/ssrn.1929141
47.
VermaR., & SoydemirG. (2006). The impact of U.S. individual and institutional investor sentiment on foreign stock markets. Journal of Behavioral Finance, 7(3), 128–144.
48.
VermaR., BaklaciH., & SoydemirG. (2008). The impact of rational and irrational sentiments of individual and institutional investors on DJIA and S&P500 index returns. Applied Financial Economics, 18(16), 1303–1317.
49.
ZouaouiM., NouyrigatG., & BeerF. (2011). How does investor sentiment affect stock market crises? Evidence from panel data. Financial Review, 46(4), 723–747.
