A study of sentiment and returns on the stock market

Abstract

The purpose of this bachelor’s thesis has been to examine the relationship between sentiment and the stock market returns in Sweden and the United States of America. The focus was put on the corporate and consumer sentiment as a proxy for investor sentiment. To achieve the purpose of this thesis our data is measured in monthly average values and stretches from 2006 to 2018. Furthermore the thesis has aimed to compare the results between the above mentioned countries. A number of studies has been published during the two past decades where the majority concludes that it do exists a relationship between sentiment and stock market returns. However most of the studies focus on investor sentiment explicitly which our study did not do.

A quantitative research method has been used to perform statistical test in order to respond to the research question. When investigating the relationship we found that both the consumer and corporate sentiments is significant in the USA. However, this is not the case in Sweden, where only the interest rate is significant. This contradicts the conventional wisdom, which says that sentiment can predict the stock market returns. Furthermore, the results show that other variables such as the interest rate and unemployment played a small or no role at all in predicting the stock market in the USA.