Differences between NZ and U.S. individual investor sentiment: more noise or more information?

Type of content
Journal Article
Thesis discipline
Degree name
Publisher
Informa UK Limited
Journal Title
Journal ISSN
Volume Title
Language
en
Date
2024
Authors
Bialkowski, Jedrzej
Wagner M, Moritz
Wei X
Abstract

In this study, we introduce a newly created sentiment index of individual investors in NZ constructed similar to the well-known sentiment index provided by the American Association of Individual Investors (AAII) in the U.S. This unique setup allows us to compare different aspects of investors’ behaviour in both countries. We show that NZ market participants are less confident about the directional movement of the stock market, their expectations are more volatile and their distributions have fatter tails. By contrast, both bullish and bearish sentiment is more persistent among U.S. investors. Furthermore, our analysis of return predictability reveals that both groups of investors behave as noise traders. However, the results for NZ investors are stronger. Overall, our findings call for better financial education, particularly in the area of equity investing.

Description
Citation
Białkowski J, Wagner M, Wei X (2024). Differences between NZ and U.S. individual investor sentiment: more noise or more information?. New Zealand Economic Papers. 58(1). 74-86.
Keywords
AAII sentiment index, information traders, noise traders, NZ sentiment index, return predictability
Ngā upoko tukutuku/Māori subject headings
ANZSRC fields of research
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350205 - Household finance and financial literacy
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350208 - Investment and risk management
35 - Commerce, management, tourism and services::3502 - Banking, finance and investment::350202 - Finance
Rights
© 2023 The Author(s). Published by Informa UK Limited, trading as Taylor & Francis Group. This is an Open Access article distributed under the terms of the Creative Commons Attribution-NonCommercial-NoDerivatives License (http://creative commons.org/licenses/by-nc-nd/4.0/), which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited, and is not altered, transformed, or built upon in any way. The terms on which this article has been published allow the posting of the Accepted Manuscript in a repository by the author(s) or with their consent.