By using the financial statement information of the companies listed in BIST (Istanbul Stock Exchange) Industrials Index, I explore the relationship between firm-level investment, investor sentiment and the stock returns for the period of 2004-2014. I use three sentiment measures. First one is the composite investor sentiment index achieved by using the pricipal component analysis with seven sentiment measures. These investor sentiment proxies are the weighted discount index based on closed-end funds, the changes in the value-weighted discount index, the share of repo holdings in the portfolios of mutual funds, the share of equity issues in aggregate issues, the monthly turnover ratio of BIST, odd-lot sales-to-purchases, net stock purchases of foreign investors-to-BIST market value. Second sentiment measure is the net inflow of investor capital into listed stocks. Third measure is the TUIK (Turkish Statistical Institute) Consumer Confidence Index. The measure of firm-level investment is based on the change in net operating assets. The results of the fixed effect panel data analysis can be summarised as follows: (i) There is a positive and significant relation between investment and the stock returns. Investment is a better predictor of stock returns than the lagged value of investment. (ii) There is a significant and positive relation between investment and the sentiment index and also between TUIK Consumer and Confidence Index. There is not a significant relation between investment and the net inflow of investor capital into BIST Industrial Index stocks. The results indicate that investment increases during the periods in which investors are more optimistic.
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In-Text Citation: (ANLAS, 2018)
To Cite this Article: ANLAS, T. (2018). The Relationship between Aggregate Investment, Investor Sentiment and Stock Returns in Turkey. International Journal of Academic Research in Business and Social Sciences, 8(10), 707–728.
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