Divergence of sentiment and stock market trading

Siganos, A. , Vagenas-Nanos, E. and Verwijmeren, P. (2017) Divergence of sentiment and stock market trading. Journal of Banking and Finance, 78, pp. 130-141. (doi: 10.1016/j.jbankfin.2017.02.005)

137842.pdf - Accepted Version



This paper introduces the concept of divergence of sentiment to the behavioral finance literature. We measure the distance between people with positive and negative sentiment on a daily basis for 20 countries by using data from status updates on Facebook. The prediction is that a higher divergence of sentiment leads to more diverging views on prospects and risks, and thus to more diverging views on the value of a stock. In line with this prediction, divergence of sentiment is positively related to trading volume. We further predict and find a positive relation between divergence of sentiment and stock price volatility. The observed relations are stronger when individual investors are more likely to trade. We compare the effect of our country-specific measures to a global measure of divergence of sentiment. We find that the separate effects of country-specific and global divergence measures depend on a country's level of market integration.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Vagenas-Nanos, Professor Evangelos and Verwijmeren, Professor Patrick and Siganos, Professor Antonios
Authors: Siganos, A., Vagenas-Nanos, E., and Verwijmeren, P.
College/School:College of Social Sciences > Adam Smith Business School > Accounting and Finance
Journal Name:Journal of Banking and Finance
Publisher:Elsevier Ltd.
ISSN (Online):1872-6372
Published Online:11 February 2017
Copyright Holders:Copyright © 2017 Elsevier
First Published:First published in Journal of Banking and Finance 78:130-141
Publisher Policy:Reproduced in accordance with the copyright policy of the publisher

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