Overview of the Nexus Between Investor Sentiment-return Relation and its Antecedents: A Systematic Literature Review

Abstract

Investor sentiment is the irrational belief of investors leading to over and under-reaction of stock return. Though scholarly works are growing expeditiously in this domain, there is no consensus on the impact of investor sentiment on stock return in different markets. Given the paucity of literature in terms of a summary overview of the nexus between investor sentiment and stock return, this study aims to bridge this gap by re-examining investor sentiment’s impact on stock return in the global context. A total of 108 articles were retrieved from the Scopus database spanning from 2000 to 2022. To review the articles, the study employs Scientific Procedure and Rationales for Systematic Literature Review (SPAR-4-SLR) approach. The review reveals that there exists a significant positive effect during the short run. Furthermore, trading volume, social media, initial public offerings, consumer confidence, and closed-end fund discount are found to be the most frequently used proxies for investor sentiment. The review suggests investors to exercise caution while making short-term investment decisions due to strong sentiment-return relations in the short run. The study findings help policymakers and regulators to play a vital role during abnormal market conditions such as market crashes, financial crises and pandemic situations.