Title:
EFFECT OF INVESTORS’ SENTIMENT ON STOCK MARKET RETURNS IN NIGERIA (1990-2017)

Authors:
Dr. Emmanuel, Tile Aime and Ahmed, Aliyu Tanko

Abstract:
The study investigated the effect of investor sentiment on stock market returns in Nigeria, using a 28-year time series data from 1990-2017. The method of analysis used is multiple regression techniques. We analyze the impacts of sentiment on stock market returns. We consider the impact of five variables to estimate sentiment index whose data derived from: Nigerian Stock Exchange, Central Bank of Nigeria statistical bulletin, Nigerian Bureau of Statistics, Securities and Exchange Commission and so on, including 189 (observations) securities quoted on the capital market. The investors’ sentiment predictors used are Consumer Confidence Index (CCI) Stock Price (P) Turnover ratio (Turn) Dividend Premium (DP), Initial Public Offering (IPO). The result of the analysis shows that there is a positive correlation between changes in sentiment predictors and stock market returns for some variables, demonstrating that individual investor sentiment affect stock prices. Though, the influence of individual investor sentiment seems to be affected by the force of arbitrage. The study also reveals that bullish sentiment leads to higher market excess returns, while bearish sentiment leads to lower excess return. It was recommended that the capital market should create an enabling environment that is highly regulated to cause a free flow of information to enable investors to be rational and mitigate their sentiment backdrops.

Keywords:
investor sentiments, noise traders, stock market returns, sentiment index, consumer confidence, arbitrage