The Relationship between Sentiment and Risk in Financial Markets

BAR - Brazilian Administration Review

Endereço:
Avenida Pedro Taques - 294 - Zona Armazém
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Site: https://bar.anpad.org.br
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ISSN: 1807-7692
Editor Chefe: Carlo Gabriel Porto Bellini
Início Publicação: 30/06/2004
Periodicidade: Trimestral
Área de Estudo: Ciências Sociais Aplicadas, Área de Estudo: Administração

The Relationship between Sentiment and Risk in Financial Markets

Ano: 2018 | Volume: 15 | Número: 1
Autores: A. L. Paraboni, M. B. Righi, K. M. Vieira, V. G. da Silveira
Autor Correspondente: K. M. Vieira | [email protected]

Palavras-chave: risk management, measures of risk, market sentiment, behavioral finance

Resumos Cadastrados

Resumo Inglês:

This article estimates association coefficients between measures of market sentiment and risk in the U.S., German and Chinese markets. In terms of risk, four measures were considered: standard deviation, value at risk, expected shortfall and shortfall deviation risk. For market sentiment, data was collected using the Psych Signal technology, which is based on the behavior of investors on social networks. The results indicate significant statistical associations, with the direction of association having financial meaning. Moreover, the empirical findings are valid for all risk measurements. The results are in keeping with the Prospect Theory, since in moments when the sentiment indicates low liquidity (a negative value for the difference between Bullish and Bearish Intensities) investors try to reduce the negotiation volume, which has a positive impact on risk. On the other hand, under the inverted scenario, when sentiment indicates high liquidity, there is an increase in the negotiation volume and a consequent decrease in risk. This article is important because its observations of market sentiment as measured by social media data show a consistent relationship with measures of financial risk.