Effect of Investors’ Sentiment on Indian Stock Market

Abstract

Researchers have found that return of Indian stock price does not follow classical finance theory. It has been termed an anomaly. Behavioural finance says that irrational investors’ decision process about stock price is responsible for this. Therefore, investors’ sentiment may play a role in the Indian stock market. This study has measured this sentiment with the help of appetite for risk explained by Bandopadhyay and Jones (2006). Kyock approach has been applied to explain the relationship between sentiment index and leading stock indices of India, that is, Sensex and S&P CNX Nifty. This approach helps in one way to take both short-term and long-term decisions. On the other hand, it helps to find out the necessary time to absorb the whole sentiment in returns of both the indices. Long-term relationship has been checked with Granger causality test (GCT).