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INVESTIGATION OF THE INVESTORS’ SENTIMENT ON FLUCTUATIONS OF STOCK PRICE IN THE UNITED KINGDOM: THE CASE OF CONSUMER GOODS

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INVESTIGATION OF THE INVESTORS’ SENTIMENT ON FLUCTUATIONS OF STOCK PRICE IN THE UNITED KINGDOM: THE CASE OF CONSUMER GOODS

INVESTIGATION OF THE INVESTORS’ SENTIMENT ON FLUCTUATIONS OF STOCK PRICE IN THE UNITED KINGDOM: THE CASE OF CONSUMER GOODS

LITERATURE REVIEW

Introduction

Different types of studies have attempted to assess the effect of the investors’ sentiments on the assets prices. This stemmed from the classic psychological assumption that investors’ sentiments are closely related to irrational investing decisions, in which the investors tended to make overly optimistic/pessimistic judgments and choices. According to Qiu and Welch, (2004) investors’ sentiments can be looked at as general feeling, expectation, or belief of the performance in the market. The sentiment is an emotional factor that can have a direct influence on the decision making of an investor and they can be irrational. Sentiment can be induced by the limited trading experience, noisy information, knowledge, and skills and it can stimulate these investors to trade at illogical times and can overestimate or underestimate the performance of the stock (Tetlock, 2007). Therefore, based on this logic, the investors who are affected by the irrational emotion can impose the additional risk on the stocks that they trade.

In spite of the existence of a couple of previous studies that sought to investigate this subject matter, the orientation of the majority of the past studies clings centrally on the USA market and market patterns, with other regions gaining peripheral focus. In order to focus on the UK consumer goods industry, this study builds on the models, findings, and recommendations of the previous studies. This is paramount in ensuring generalization of the findings and reliability of the study approach. In light of this, this section elucidates the fundamental postulates instrumental to defining the relationship between investors’ sentiments and Stock Price, in anchoring the development of the study’s epistemological stance.

In order to integrate the past concepts, findings and postulations of different scholars, this segment is divided into various sections. The sections covered in this segment are the theoretical, empirical evidence, gaps in the literature and the research hypothesis sections. The segment begins by evaluating the theoretical framework within which the study aligns its school of thought. The empirical evidence is then assessed, as presented in the past studies in order to solidify the available knowledge on the stock market pattern, price predictability, and stock price oscillatory catalyst factors. The segment then evaluates the gaps that exists in the past studies and identifies the knowledge gaps that the study seeks to fill. The segment ends with the evaluation of the proposed philosophical view as derived from the assessment of the literature.

Theoretical Evidence

The earlier studies of the effect of investors’ sentiments on the aggregate returns of the stock were largely theoretical that tested whether the stock prices can be mispriced (Baker & Wurgler, 2007). They mainly hinged on the tendency of……………….


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