Abstract

This paper uses two types of daily and monthly investor sentiment measures and an indicator of broker sentiment to identify the dynamic linkages of the investor and broker sentiments. I categorize market sentiment into extreme, modest, and representative levels. Then I use unrestricted VAR and Granger causality tests to reveal the sentiments spillover between the counterparties of equity transaction at positive and negative return environments. The main findings are: previous investor sentiments affect the current investor and broker sentiments in the same direction, yet previous broker sentiments do not significantly affect the current investor sentiment. Standard& Poor’s 100, 500, and NASDAQ-based investor sentimentsshow frequent self-corrections, while the DOW-based sentiment is persistent. Furthermore, extremely negative investor sentimentasy mmetrically dominates the equity market.In addition, brokers only take the consensus of investor sentiments as reference for the bullish stocks; while for the bearish stocks, broker sentiment is mostly affected by the extreme investor gauges and less by consensus. Pessimistic broker sentiment is not the cause but the effect of investor fear.

This work is licensed under a Creative Commons Attribution 4.0 License.