Removing effect of investor sentiment: Monthly excess stock market returns against conditional variances, implied variance and volatility innovations with uncertainty
| Model | c1 | d1 | e1 | c2 | d2 | e2 | Adj. R2 (%) |
|---|---|---|---|---|---|---|---|
| Panel A: Rolling window model | |||||||
| (1)-E | 0.0143*** (4.3058) | −3.4188* (−1.8759) | −13.2368*** (−3.8734) | 1.90 × 10–4 (0.0412) | 0.7225 (0.4162) | 9.5675*** (3.2284) | 31.399 |
| (1)-V | 0.0121*** (5.6033) | −3.2181** (−2.2054) | −13.7670*** (−5.1744) | 0.0050 (1.5078) | 0.3754 (0.2703) | 10.16669*** (4.7905) | 34.020 |
| Model | Adj. | ||||||
|---|---|---|---|---|---|---|---|
| Panel A: Rolling window model | |||||||
| (1)-E | 0.0143*** (4.3058) | −3.4188* (−1.8759) | −13.2368*** (−3.8734) | 1.90 × 10–4 (0.0412) | 0.7225 (0.4162) | 9.5675*** (3.2284) | 31.399 |
| (1)-V | 0.0121*** (5.6033) | −3.2181** (−2.2054) | −13.7670*** (−5.1744) | 0.0050 (1.5078) | 0.3754 (0.2703) | 10.16669*** (4.7905) | 34.020 |
| Panel B: MIDAS | |||||||
|---|---|---|---|---|---|---|---|
| (2)-E | 0.0092*** (2.9226) | −3.9062** (−2.2572) | −10.2324*** (−3.6569) | 0.0069 (1.5717) | 0.6855 (0.4357) | 5.6301** (2.0558) | 28.987 |
| (2)-V | 0.0075** (2.5693) | −3.9094*** (−2.8645) | −10.3914*** (−5.2312) | 0.0110*** (2.7000) | 0.5951 (0.4947) | 5.6541** (2.5860) | 30.064 |
| Panel B: MIDAS | |||||||
|---|---|---|---|---|---|---|---|
| (2)-E | 0.0092*** (2.9226) | −3.9062** (−2.2572) | −10.2324*** (−3.6569) | 0.0069 (1.5717) | 0.6855 (0.4357) | 5.6301** (2.0558) | 28.987 |
| (2)-V | 0.0075** (2.5693) | −3.9094*** (−2.8645) | −10.3914*** (−5.2312) | 0.0110*** (2.7000) | 0.5951 (0.4947) | 5.6541** (2.5860) | 30.064 |
| Panel C: GARCH(1,1) | |||||||
|---|---|---|---|---|---|---|---|
| (3)-E | 0.0061** (2.2994) | −0.7111 (−0.3360) | −7.7869** (−2.5052) | 0.0072* (1.8518) | −1.8344 (−0.9071) | 4.2459 (1.4379) | 25.026 |
| (3)-V | 0.0039 (1.3602) | −0.3096 (−0.1308) | −7.7298** (−2.0614) | 0.0117*** (3.0021) | −2.3555 (−1.0219) | 4.1537 (1.1668) | 26.165 |
| Panel C: GARCH(1,1) | |||||||
|---|---|---|---|---|---|---|---|
| (3)-E | 0.0061** (2.2994) | −0.7111 (−0.3360) | −7.7869** (−2.5052) | 0.0072* (1.8518) | −1.8344 (−0.9071) | 4.2459 (1.4379) | 25.026 |
| (3)-V | 0.0039 (1.3602) | −0.3096 (−0.1308) | −7.7298** (−2.0614) | 0.0117*** (3.0021) | −2.3555 (−1.0219) | 4.1537 (1.1668) | 26.165 |
| Panel D: GJR-GARCH(1,1) | |||||||
|---|---|---|---|---|---|---|---|
| (4)-E | 0.0057** (2.1069) | −1.3302 (−0.6801) | −14.6554*** (−3.3564) | 0.0083** (2.0916) | −1.5325 (−0.8016) | 9.2307** (1.9759) | 31.857 |
| (4)-V | 0.0051* (1.8725) | −1.6682 (−0.9629) | −16.2106*** (−4.3438) | 0.0110*** (2.8526) | −1.3415 (−0.8714) | 10.9692** (2.4663) | 34.568 |
| Panel D: GJR-GARCH(1,1) | |||||||
|---|---|---|---|---|---|---|---|
| (4)-E | 0.0057** (2.1069) | −1.3302 (−0.6801) | −14.6554*** (−3.3564) | 0.0083** (2.0916) | −1.5325 (−0.8016) | 9.2307** (1.9759) | 31.857 |
| (4)-V | 0.0051* (1.8725) | −1.6682 (−0.9629) | −16.2106*** (−4.3438) | 0.0110*** (2.8526) | −1.3415 (−0.8714) | 10.9692** (2.4663) | 34.568 |
| Panel E: Implied variance | |||||||
|---|---|---|---|---|---|---|---|
| (5)-E | −0.0045 (−1.6060) | 0.5485*** (8.8157) | 0.4491*** (3.3723) | 0.0135** (2.5122) | −0.6336*** (−6.0791) | −0.6226*** (−3.5389) | 5.521 |
| (5)-V | −0.0063** (−2.1060) | 0.5542*** (8.1905) | 0.4601*** (3.6592) | 0.0186*** (3.9672) | −0.6589*** (−5.5696) | −0.6525*** (−3.6574) | 6.546 |
| Panel E: Implied variance | |||||||
|---|---|---|---|---|---|---|---|
| (5)-E | −0.0045 (−1.6060) | 0.5485*** (8.8157) | 0.4491*** (3.3723) | 0.0135** (2.5122) | −0.6336*** (−6.0791) | −0.6226*** (−3.5389) | 5.521 |
| (5)-V | −0.0063** (−2.1060) | 0.5542*** (8.1905) | 0.4601*** (3.6592) | 0.0186*** (3.9672) | −0.6589*** (−5.5696) | −0.6525*** (−3.6574) | 6.546 |
Note(s): The table reports estimates from the regressions of monthly excess stock market returns against conditional variances, implied variance and volatility innovations. 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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