The effect of investor sentiment in financial markets on the volatility of stock returns, mediated by market liquidity
DOI:
https://doi.org/10.31272/jae.i149.1454Keywords:
Investor Sentiment, Market liquidity, Trading Volume, Market Rate of ReturnAbstract
The research aims to determine the response of stock returns in the financial markets as a result of the nature of the investor’s impulsiveness and orientations in accordance with behavioral theory, away from rationality in decision-making, and how market liquidity can play a role in enhancing this effect. The Iraqi Stock Exchange was chosen as a research community and the sample represents market data for the extended period. [1/2009 - 12/2023] on a monthly level, which produced a time series that included [180] observations for each variable. The investor sentiment variable was measured by the trading volume index, market liquidity by the natural logarithm of the market size according to the market value, and the volatility of stock returns by calculating the market rate of return. According to the market index, a simple and multiple regression model was adopted to test the mediation hypothesis, and the results showed that there is a positive, significant effect of investor morale on stock returns, which reflects a state of pessimism or optimism in price trends. It also showed that increasing investor options and market depth directly enhances the effect of investor morale on Volatility of returns
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