Investor sentiment and stock return volatility: evidence from the Indian Stock Exchange

Abstract

In any stock market, volatility is a significant factor in strengthening their asset pricing. The upsurge in volatility in the stock market can activate and bring changes in the financial risk. According to financial conventional theory, the stakeholders (investors) are selected to be balanced and variations in pertinent risk are also to be anticipated due to the outcome of the drive-in basic factors in Indian stock markets. The hypothesis shows that there are actions in systematic and unsystematic risks that are determined by volatility. It is allied to sentiment-driven in the trader movement. The paper used the methodology of generalized autoregressive conditional heteroskedasticity-in mean GARCH-M and exponential GARCH-M (E-GARCH-M) methods on the Indian stock market. The data have been covered from 2000 to 2019. Finally, the study suggests that due to the unfitness of the capital asset pricing model (CAPM), the selection has enhanced with sentiment is an important risk factor. The investor sentiment and stock return volatility statement are established by using the investor sentiment amalgamated stock market index built. The outcome of the study shows that there is an important association between stakeholder (investor) sentiment and stock return, in case of volatility behavioural finance can significantly explain the behaviour of stock returns on the Indian Stock Exchange.