Feelings of investor confidence and investment returns in common stocks

Abstract

Investors' optimism and pessimism about stock returns is considered as one of the important behavioral determinants of the investment performance of stock markets. The question to be answered is whether a consumer confidence index, as a representative of investor feelings, effect on the common stock returns. In recent empirical evidence in the US financial markets indicate that the investor sentiment associated with an negative relationship with the total return of shares. When confidence feelings is high, the stock returns are low, and vice versa. On the other hand, do these feelings change with the different sectors consisting of equity markets? Does this relationship vary depending on the country in which investors trading in its markets?
Using a number of financial and statistical methods and their application to the monthly close values of indexes for a group of Arab financial markets for a period of seven years, the study found a number of conclusions, the most important among them there is a positive and significant effect relationship between feelings of investor confidence and investment returns of common stocks in most of the Arab financial markets.
The study came up with a number of recommendations including the need to increase investment awareness for clients in the financial markets, and they must not be influenced by psychological factors related to their feelings, which have a negative implications for the entire trading activity in the market and in contravention of the rationality assumptions of the theory of efficient markets.