Removing effect of investor sentiment: Monthly excess stock market returns against conditional variances and implied variance with uncertainty
| Model | a1 | b1 | a2 | b2 | Adj. R2 (%) |
|---|---|---|---|---|---|
| Panel A: Rolling window model | |||||
| (1)-E | 0.0020 (0.7564) | 3.8492*** (4.5014) | 0.0089* (1.7045) | −5.7503*** (−7.7159) | 8.640 |
| (1)-V | −7.12 × 10–4 (−0.2854) | 4.3781*** (6.3711) | 0.0142*** (3.7523) | −6.4427*** (−11.3850) | 10.498 |
| Model | Adj. | ||||
|---|---|---|---|---|---|
| Panel A: Rolling window model | |||||
| (1)-E | 0.0020 (0.7564) | 3.8492*** (4.5014) | 0.0089* (1.7045) | −5.7503*** (−7.7159) | 8.640 |
| (1)-V | −7.12 × 10–4 (−0.2854) | 4.3781*** (6.3711) | 0.0142*** (3.7523) | −6.4427*** (−11.3850) | 10.498 |
| Panel B: MIDAS | |||||
|---|---|---|---|---|---|
| (2)-E | 1.59 × 10–4 (0.0555) | 3.2272*** (5.9357) | 0.0107** (2.1665) | −4.9393*** (−8.3578) | 12.596 |
| (2)-V | −0.0015 (−0.5874) | 3.1987*** (5.3412) | 0.0146*** (3.9200) | −4.9571*** (−8.2909) | 12.819 |
| Panel B: MIDAS | |||||
|---|---|---|---|---|---|
| (2)-E | 1.59 × 10–4 (0.0555) | 3.2272*** (5.9357) | 0.0107** (2.1665) | −4.9393*** (−8.3578) | 12.596 |
| (2)-V | −0.0015 (−0.5874) | 3.1987*** (5.3412) | 0.0146*** (3.9200) | −4.9571*** (−8.2909) | 12.819 |
| Panel C: GARCH(1,1) | |||||
|---|---|---|---|---|---|
| (3)-E | 4.81 × 10–4 (0.1732) | 3.7434*** (6.2314) | 0.0091* (1.8885) | −5.3781*** (−8.5842) | 7.239 |
| (3)-V | −0.0018 (−0.6836) | 3.9706*** (6.0568) | 0.0137*** (3.6034) | −5.7159*** (−8.8836) | 8.097 |
| Panel C: GARCH(1,1) | |||||
|---|---|---|---|---|---|
| (3)-E | 4.81 × 10–4 (0.1732) | 3.7434*** (6.2314) | 0.0091* (1.8885) | −5.3781*** (−8.5842) | 7.239 |
| (3)-V | −0.0018 (−0.6836) | 3.9706*** (6.0568) | 0.0137*** (3.6034) | −5.7159*** (−8.8836) | 8.097 |
| Panel D: GJR-GARCH(1,1) | |||||
|---|---|---|---|---|---|
| (4)-E | −0.0019 (−0.6117) | 5.4890*** (6.1301) | 0.0137*** (2.8953) | −7.7743*** (−7.5828) | 7.938 |
| (4)-V | −0.0044 (−1.4859) | 5.7892*** (5.9516) | 0.0189*** (4.4732) | −8.2731*** (−8.3799) | 9.255 |
| Panel D: GJR-GARCH(1,1) | |||||
|---|---|---|---|---|---|
| (4)-E | −0.0019 (−0.6117) | 5.4890*** (6.1301) | 0.0137*** (2.8953) | −7.7743*** (−7.5828) | 7.938 |
| (4)-V | −0.0044 (−1.4859) | 5.7892*** (5.9516) | 0.0189*** (4.4732) | −8.2731*** (−8.3799) | 9.255 |
| Panel E: Implied variance | |||||
|---|---|---|---|---|---|
| (5)-E | −0.0042 (−1.1450) | 0.4054*** (6.2509) | 0.0138** (2.0619) | −0.5294*** (−3.6461) | 4.232 |
| (5)-V | −0.0064* (−1.8488) | 0.4188*** (6.2855) | 0.0191*** (3.4688) | −0.5658*** (−4.1600) | 4.991 |
| Panel E: Implied variance | |||||
|---|---|---|---|---|---|
| (5)-E | −0.0042 (−1.1450) | 0.4054*** (6.2509) | 0.0138** (2.0619) | −0.5294*** (−3.6461) | 4.232 |
| (5)-V | −0.0064* (−1.8488) | 0.4188*** (6.2855) | 0.0191*** (3.4688) | −0.5658*** (−4.1600) | 4.991 |
Note(s): The table reports estimates from the regressions of monthly excess stock market returns against conditional variances, and implied variance. Models (1)-E to (5)-E ((1)-V to (5)-V) are estimates from the regressions with a dummy variable of FEPU (FVOV) after removing the effect of investor sentiment. Newey and West (1987) corrected t-statistics are reported in parentheses. *, ** and *** represent significance at the 10, 5 and 1% levels, respectively
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