Momentum and Investor Sentiment: Evidence from Asian Stock Markets

Abstract

We investigate whether investor sentiment affects momentum profitability using a sample of 13 Asian countries: Bangladesh, China, Hong Kong, India, Indonesia, Japan, Malaysia, Pakistan, Philippines, Singapore, South Korea, Taiwan and Thailand. We find that momentum arises only during optimistic and mild periods. Momentum is absent for periods of pessimism. This suggests that investors are detail oriented during pessimistic periods and thereby hinder the occurrence of momentum in the stock market. We also find that global sentiment affects momentum which affirms the contagious nature of sentiment. In addition, the findings indicate that holding period sentiment also affects momentum. The results are robust to changes in sentiment period classification and the use of alternative proxies for investor sentiment.