Does Fear has Stronger Impact than Confidence on Stock Returns? The Case of Asia-Pacific Developed Markets


  • Ngoc Bao Vuong
  • Yoshihisa Suzuki



investor sentiment, stock returns, consumer confidence index, volatility index


Employing data from Australia, Hong Kong, and Japan over the period between January 2004 to December 2017, this study investigates the relationship between investor sentiment and stock returns. We analyze two reversed sentiment indicators, namely Consumer Confidence Index (CCI) and Volatility Index (VIX), in two conversing situations: low and high sentiment. The empirical evidence suggests that sentiment has a significant link with concurrent returns, but its influence seems to wipe out quickly as the little to no return predictability is detected. More importantly, we find that “investor fear gauge” (VIX) generates a more significant contemporaneous effect on market returns than investor confidence. The impact on future returns, on the contrary, is inconclusive since low CCI and VIX dominate the opposite ones most of the time.

JEL Codes - G10; G15; G40


Ajao, I. O., Ibraheem, A. G., and Ayoola, F. J., 2012. Cubic spline interpolation: A robust method of disaggregating annual data to quarterly series. Journal of Physical Sciences and Environmental Safety, 2(1), 1-8.

Anusakumar, S. V., Ali, R., and Wooi, H. C., 2017. The effect of investor sentiment on stock returns: Insight from emerging Asian markets. Asian Academy of Management Journal of Accounting & Finance, 13(1), 159-178.

Baker, M., and Stein, J. C., 2004. Market liquidity as a sentiment indicator. Journal of Financial Markets, 7(3), 271-299.

Baker, M., and Wurgler, J., 2006. Investor sentiment and the cross-section of stock returns. The Journal of Finance, 61(4), 1645-1680.

Baker, M., and Wurgler, J., 2007. Investor sentiment in the stock market. The Journal of Economic Perspectives, 21(2), 129-152.

Baker, M., Wurgler, J., and Yuan, Y., 2012. Global, local, and contagious investor sentiment. Journal of Financial Economics, 104(2), 272-287.

Bathia, D., and Bredin, D., 2013. An examination of investor sentiment effect on G7 stock market returns. European Journal of Finance, 19(9), 909-937.

Bekaert, G., and Hoerova, M., 2014. The VIX, the variance premium and stock market volatility. Journal of Econometrics, 183(2), 181-192.

Brown, G. W., and Cliff, M. T., 2004. Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1-27.

Brown, G. W., and Cliff, M. T., 2005. Investor sentiment and asset valuation. The Journal of Business, 78(2), 405-440.

Chang, E. C., and Asakawa, K., 2003. Cultural variations on optimistic and pessimistic bias for self versus a sibling: Is there evidence for self-enhancement in the west and for self-criticism in the east when the referent group is specified? Journal of Personality and Social Psychology, 84(3), 569-581.

Chen, G., Firth, M., and Rui, O. M., 2001. The dynamic relation between stock returns, trading volume, and volatility. Financial Review, 36(3), 153-174.

Chen, G., Kim, K. A., Nofsinger, J. R., and Rui, O. M., 2007. Trading performance, disposition effect, overconfidence, representativeness bias, and experience of emerging market investors. Journal of Behavioral Decision Making, 20(4), 425-451.

Chen, S. S., 2011. Lack of consumer confidence and stock returns. Journal of Empirical Finance, 18(2), 225-236.

Chi, L., Zhuang, X., and Song, D., 2012. Investor sentiment in the Chinese stock market: An empirical analysis. Applied Economics Letters, 19(4), 345-348.

Corredor, P., Ferrer, E., and Santamaria, R., 2013. Investor sentiment effect in stock markets: Stock characteristics or country-specific factors? International Review of Economics & Finance, 27, 572-591.

Corredor, P., Ferrer, E., and Santamaria, R., 2015. The impact of investor sentiment on stock returns in emerging markets: The case of Central European Markets. Eastern European Economics, 53(4), 328-355.

Dash, S. R., and Maitra, D., 2018. Does sentiment matter for stock returns? Evidence from Indian stock market using wavelet approach. Finance Research Letters, 26, 32-39.

Ding, W., Mazouz, K., and Wang, Q., 2019. Investor sentiment and the cross-section of stock returns: New theory and evidence. Review of Quantitative Finance and Accounting, 53(2), 493-525.

Doukas, J. A., and Milonas, N. T., 2004. Investor sentiment and the closed-end fund puzzle: Out-of-sample evidence. European Financial Management, 10(2), 235-266.

Edelen, R. M., Marcus, A. J., and Tehranian, H., 2010. Relative sentiment and stock returns. Financial Analysts Journal, 66(4), 20-32.

Finter, P., Niessen-Ruenzi, A., and Ruenzi, S., 2012. The impact of investor sentiment on the German stock market. Eastern European Economics, 82(2), 133-163.

Fisher, K. L., and Statman, M., 2003. Consumer confidence and stock returns. Journal of Portfolio Management, 30(1), 115-127.

Gizelis, D. J., and Chowdhury, S. S. H., 2016. Investor sentiment and stock returns: Evidence from the Athens Stock Exchange. International Research Journal of Applied Finance, 7(7), 137-162.

Horta, P., and Lobao, J., 2018. Global and extreme dependence between investor sentiment and stock returns in European markets. Journal of Behavioral Finance, 19(2), 141-158.

Hsing, Y., 2011. Impacts of macroeconomic variables on the US stock market index and policy implications. Economic Bulletin, 31(1), 883-892.

Huang, D., Jiang, F., Tu, J., and Zhou, G., 2015. Investor sentiment aligned: A powerful predictor of stock returns. Review of Financial Studies, 28(3), 791-837.

Ishijima, H., Kazumi, T., and Maeda, A., 2015. Sentiment analysis for the Japanese stock market. Global Business and Economics Review, 17(3), 237-255.

Khan, M. A., and Ahmad, E., 2018. Measurement of investor sentiment and its bi-directional contemporaneous and lead-lag relationship with returns: Evidence from Pakistan. Sustainability, 11(1), 1-20.

Kim, K. A., and Nofsinger, J. R., 2008. Behavioral finance in Asia. Pacific-Basin Finance Journal, 16(1-2), 1-7.

Kim, M., and Park, J., 2015. Individual Investor Sentiment and Stock Returns: Evidence from the Korean Stock Market. Emerging Markets Finance and Trade, 51(sup5), S1-S20.

Kostopoulos, D., and Meyer, S., 2018. Disentangling investor sentiment: Mood and household attitudes towards the economy. Journal of Economic Behavior & Organization, 155, 28-78.

Lansing, K. J., and Tubbs, M., 2018. Using sentiment and momentum to predict stock returns. FRBSF Economic Letter, 2018, 29.

Lemmon, M., and Portniaguina, E., 2006. Consumer confidence and asset prices: Some empirical evidence. Review of Financial Studies, 19(4), 1499-1529.

Li, H., Guo, Y., and Park, S. Y., 2017. Asymmetric relationship between investors' sentiment and stock returns: Evidence from a quantile non-causality test. International Review of Finance, 17(4), 617-626.

Liston, D. P., 2016. Sin stock returns and investor sentiment. The Quarterly Review of Economics and Finance, 59, 63-70.

Lutz, C., 2016. The asymmetric effects of investor sentiment. Macroeconomic Dynamics, 20(6), 1477-1503.

Marczak, M., and Beissinger, T., 2016. Bidirectional relationship between investor sentiment and excess returns: New evidence from the Wavelet perspective. Applied Economics Letters, 23(18), 1305-1311.

Massa, M., and Yadav, V., 2015. Investor sentiment and mutual fund strategies. Journal of Financial and Quantitative Analysis, 50(4), 699-727.

Oprea, D. S., and Brad, L., 2014. Investor sentiment and stock returns: Evidence from Romania. International Journal of Academic Research in Accounting. Finance and Management Sciences, 4(2), 19-25.

Qadan, M., Kliger, D., and Chen, N., 2019. Idiosyncratic volatility, the VIX and stock returns. The North American Journal of Economics and Finance, 47, 431-441.

Qiu, L., and Welch, I., 2004. Investor sentiment measures (Vol. w10794): National Bureau of Economic Research.

Sayim, M., and Rahman, H., 2015. The relationship between individual investor sentiment, stock return and volatility: Evidence from the Turkish market. International Journal of Emerging Markets, 10(3), 504-520.

Schmeling, M., 2009. Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394-408.

Smales, L. A., 2016. Risk-on/Risk-off: Financial market response to investor fear. Finance Research Letters, 17, 125-134.

Smales, L. A., 2017. The importance of fear: Investor sentiment and stock market returns. Applied Economics, 49(34), 3395-3421.

Tsai, I. C., 2017. Diffusion of optimistic and pessimistic investor sentiment: An empirical study of an emerging market. International Review of Economics & Finance, 47, 22-34.

Tversky, A., and Kahneman, D., 1986. Rational choice and the framing of decisions. The Journal of Business, 59, S251-278.

Whaley, R. E., 2000. The investor fear gauge. Journal of Portfolio Management, 26(3), 12-17.

Yiend, J., Andre, J., Smith, L., Chen, L. H., Toulopoulou, T., Chen, E., . . . Parkinson, B., 2019. Biased cognition in East Asian and Western cultures. PLoS One, 14(10), e0223358.




How to Cite

Vuong, N. B., & Suzuki, Y. (2020). Does Fear has Stronger Impact than Confidence on Stock Returns? The Case of Asia-Pacific Developed Markets. Scientific Annals of Economics and Business, 67(2), 157–175.