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The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test

Year 2019, Volume: 14, 164 - 172, 27.03.2019

Abstract

This paper aims to
investigate the causal relationship between investor sentiment and stock
returns on Borsa Istanbul (BIST).  We
analyze the changes in Consumer Confidence Index as a proxy for investor
sentiment and changes in the BIST-100 return index, employing both the
conventional and time-varying recursive evolving Granger causality tests. The
monthly data covering January-2004 – September-2018 are analyzed. Contrary to
the findings of the conventional Granger causality tests, the recursive
evolving Granger causality tests indicate bi-directional causality relationship
between the time-series. We detect Granger causality running from BIST-100 to
Consumer Confidence Index, starting in December-2015 and continuing until the
end of sample period. Moreover, the recursive algorithm detects Granger
causality running from Consumer Confidence Index to BIST-100 occurred in
February-2018, lasting for two months. The investors, portfolio managers, and
policy makers in Borsa Istanbul should consider investor sentiment as an
additional source of systematic risk.

References

  • Akhtar, S., Faff, R., Oliver, B., & Subrahmanyam, A. (2011). The power of bad: The negativity bias in Australian consumer sentiment announcements on stock returns. Journal of Banking & Finance, 35(5), 1239–1249. https://doi.org/10.1016/J.JBANKFIN.2010.10.014
  • Baker, M., & Stein, J. C. (2004). Market liquidity as a sentiment indicator. Journal of Financial Markets, 7(3), 271–299. https://doi.org/10.1016/J.FINMAR.2003.11.005
  • Baker, M., & Wurgler, J. (2006). Investor Sentiment and the Cross-Section of Stock Returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
  • Baker, M., & Wurgler, J. (2007). Investor Sentiment in the Stock Market. Journal of Economic Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129
  • Baur, M. N., Quintero, S., & Stevens, E. (1996). The 1986-88 stock market: Investor sentiment or fundamentals? Managerial and Decision Economics, 17(3), 319–329. https://doi.org/10.1002/(SICI)1099-1468(199605)17:3<319::AID-MDE776>3.0.CO;2-0
  • Bolaman, Ö., & Evrim-Mandacı, P. (2014). Effect of investor sentiment on stock markets. Finansal Araştırmalar ve Çalışmalar Dergisi, 6(11), 51–64. https://doi.org/10.14784/JFRS.2014117327
  • Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1–27. https://doi.org/10.1016/J.JEMPFIN.2002.12.001
  • Canbaş, S., & Kandır, S. Y. (2007). Yatırımcı Duyarlılığının İMKB Sektör Gelirleri Üzerindeki Etkisi. Dokuz Eylül Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 22(2), 219–248.
  • Canbaş, S., & Kandır, S. Y. (2009). Investor Sentiment and Stock Returns: Evidence from Turkey. Emerging Markets Finance and Trade, 45(4), 36–52. https://doi.org/10.2753/REE1540-496X450403
  • Carrion-i-Silvestre, J. L., Kim, D., & Perron, P. (2009). GLS-BASED UNIT ROOT TESTS WITH MULTIPLE STRUCTURAL BREAKS UNDER BOTH THE NULL AND THE ALTERNATIVE HYPOTHESES. Econometric Theory, 25(06), 1754. https://doi.org/10.1017/S0266466609990326
  • Chen, M.-P., Chen, P.-F., & Lee, C.-C. (2013). Asymmetric effects of investor sentiment on industry stock returns: Panel data evidence. Emerging Markets Review, 14, 35–54. https://doi.org/10.1016/J.EMEMAR.2012.11.001
  • Chen, N.-F., Kan, R., & Miller, M. H. (1993). Are the Discounts on Closed-End Funds a Sentiment Index? The Journal of Finance, 48(2), 795–800. https://doi.org/10.1111/j.1540-6261.1993.tb04741.x
  • Chiang, M.-C., Tsai, I.-C., & Lee, C.-F. (2011). Fundamental indicators, bubbles in stock returns and investor sentiment. The Quarterly Review of Economics and Finance, 51(1), 82–87. https://doi.org/10.1016/J.QREF.2010.11.001
  • De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise Trader Risk in Financial Markets. Journal of Political Economy, 98(4), 703–738. https://doi.org/10.1086/261703
  • Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427. https://doi.org/10.2307/2286348
  • Fisher, K. L., & Statman, M. (2003). Consumer Confidence and Stock Returns. The Journal of Portfolio Management, 30(1), 115–127. https://doi.org/10.3905/jpm.2003.319925
  • Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
  • Granger, C. W. J. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1–2), 199–211. https://doi.org/10.1016/0304-4076(88)90045-0
  • Jansen, W. J., & Nahuis, N. J. (2003). The stock market and consumer confidence: European evidence. Economics Letters, 79(1), 89–98. https://doi.org/10.1016/S0165-1765(02)00292-6
  • Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263–291. https://doi.org/10.2307/1914185
  • Korkmaz, T., & Çevik, E. (2009). Reel Kesim Güven Endeksi ile İMKB 100 Endeksi arasındaki dinamik nedensellik ilişkisi. Istanbul University Journal of the School of Business Administration, 38(1), 24–37.
  • Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
  • Lee, C. M. C., Shleifer, A., & Thaler, R. H. (1990). Anomalies: Closed-End Mutual Funds. Journal of Economic Perspectives, 4(4), 153–164. https://doi.org/10.1257/jep.4.4.153
  • Lee, C., Shleifer, A., & Thaler, R. H. (1991). Investor sentiment and the closed end fund puzzle. The Journal of Finance, 46(1), 75–109. https://doi.org/10.2307/2328690
  • Ni, Z.-X., Wang, D.-Z., & Xue, W.-J. (2015). Investor sentiment and its nonlinear effect on stock returns—New evidence from the Chinese stock market based on panel quantile regression model. Economic Modelling, 50, 266–274. https://doi.org/10.1016/J.ECONMOD.2015.07.007
  • Olgaç, S., & Temizel, F. (2008). Yatırımcı Duyarlılığı Hisse Senedi Getirileri İlişkisi: Türkiye Örneği. TISK Akademi, 3(6), 224–239.
  • Otoo, M. W. (1999). Consumer Sentiment and the Stock Market. FEDS Working Paper No. 99-60.
  • Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
  • Phillips, P. C. B., Shi, S., & Yu, J. (2015). TESTING FOR MULTIPLE BUBBLES: HISTORICAL EPISODES OF EXUBERANCE AND COLLAPSE IN THE S&amp;P 500. International Economic Review, 56(4), 1043–1078. https://doi.org/10.1111/iere.12132
  • Ritter, J. R. (2003). Behavioral finance. Pacific-Basin Finance Journal, 11(4), 429–437. https://doi.org/10.1016/S0927-538X(03)00048-9
  • Schmeling, M. (2009). Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408. https://doi.org/10.1016/J.JEMPFIN.2009.01.002
  • Shefrin, H. (1999). Irrational Exuberance and Option Smiles. Financial Analysts Journal, 55(6), 91–103. https://doi.org/10.2469/faj.v55.n6.2316
  • Shi, S., Phillips, P. C. B., & Hurn, S. (2018). Change Detection and the Causal Impact of the Yield Curve. Journal of Time Series Analysis, 39(6), 966–987. https://doi.org/10.1111/jtsa.12427
  • Swanson, N. R. (1998). Money and output viewed through a rolling window. Journal of Monetary Economics, 41(3), 455–474. https://doi.org/10.1016/S0304-3932(98)00005-1
  • Thaler, R. H. (2000). From Homo Economicus to Homo Sapiens. Journal of Economic Perspectives, 14(1), 133–141. https://doi.org/10.1257/jep.14.1.133
  • Thoma, M. A. (1994). Subsample instability and asymmetries in money-income causality. Journal of Econometrics, 64(1–2), 279–306. https://doi.org/10.1016/0304-4076(94)90066-3
  • Topuz, Y. V. (2011). Tüketici Güveni Ve Hisse Senedi Fiyatları Arasındaki Nedensellik İlişkisi: Türkiye Örneği. Ekonomik ve Sosyal Araştırmalar Dergisi, 7(1), 53–65.
  • Uygur, U., & Taş, O. (2014). The impacts of investor sentiment on different economic sectors: Evidence from Istanbul Stock Exchange. Borsa Istanbul Review, 14(4), 236–241. https://doi.org/10.1016/J.BIR.2014.08.001
  • Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data. Financial Review, 46(4), 723–747. https://doi.org/10.1111/j.1540-6288.2011.00318.x

Tüketici Güven Endeksi ve Hisse Senedi Getirilerinin Nedensellik İlişkisi: Özyinelemeli Granger Nedensellik Testinden Kanıtlar

Year 2019, Volume: 14, 164 - 172, 27.03.2019

Abstract

Bu çalışma, Borsa İstanbul (BIST) yatırımcı hissi ve
hisse senedi getirileri arasındaki nedensel ilişkiyi araştırmayı
amaçlamaktadır. Yatırımcı duyarlılığını temsilen kullanılan Tüketici Güven
Endeksindeki değişimler ve BIST-100 Getiri Endeksindeki değişimler geleneksel
ve zamana göre değişen özyinelemeli Granger nedensellik testleriyle analiz
edilmiştir. Ocak 2004 – Eylül 2018 dönemini kapsayan aylık veriler analiz
edilmiştir. Geleneksel Granger nedensellik test sonuçlarının aksine,
özyinelemeli Granger testleri BIST-100 ve Tüketici Güven Endeksi arasında çift
yönlü nedensellik ilişkisi olduğunu göstermektedir. BIST-100’den Tüketici Güven
Endeksi’ne Aralık 2015’te başlayan ve örneklem sonuna kadar süregelen
nedensellik tespit edilmiştir. Bununla birlikte, Tüketici Güven Endeksi’nden
BIST-100’e Şubat 2018’de başlayan ve iki ay süren nedensellik ilişkisi tespit
edilmiştir. Borsa İstanbul'daki yatırımcılar, portföy yöneticileri ve politika
yapıcılar, yatırımcı hissesini ek bir sistematik risk kaynağı olarak
değerlendirmelidir.

References

  • Akhtar, S., Faff, R., Oliver, B., & Subrahmanyam, A. (2011). The power of bad: The negativity bias in Australian consumer sentiment announcements on stock returns. Journal of Banking & Finance, 35(5), 1239–1249. https://doi.org/10.1016/J.JBANKFIN.2010.10.014
  • Baker, M., & Stein, J. C. (2004). Market liquidity as a sentiment indicator. Journal of Financial Markets, 7(3), 271–299. https://doi.org/10.1016/J.FINMAR.2003.11.005
  • Baker, M., & Wurgler, J. (2006). Investor Sentiment and the Cross-Section of Stock Returns. The Journal of Finance, 61(4), 1645–1680. https://doi.org/10.1111/j.1540-6261.2006.00885.x
  • Baker, M., & Wurgler, J. (2007). Investor Sentiment in the Stock Market. Journal of Economic Perspectives, 21(2), 129–151. https://doi.org/10.1257/jep.21.2.129
  • Baur, M. N., Quintero, S., & Stevens, E. (1996). The 1986-88 stock market: Investor sentiment or fundamentals? Managerial and Decision Economics, 17(3), 319–329. https://doi.org/10.1002/(SICI)1099-1468(199605)17:3<319::AID-MDE776>3.0.CO;2-0
  • Bolaman, Ö., & Evrim-Mandacı, P. (2014). Effect of investor sentiment on stock markets. Finansal Araştırmalar ve Çalışmalar Dergisi, 6(11), 51–64. https://doi.org/10.14784/JFRS.2014117327
  • Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of Empirical Finance, 11(1), 1–27. https://doi.org/10.1016/J.JEMPFIN.2002.12.001
  • Canbaş, S., & Kandır, S. Y. (2007). Yatırımcı Duyarlılığının İMKB Sektör Gelirleri Üzerindeki Etkisi. Dokuz Eylül Üniversitesi İktisadi ve İdari Bilimler Fakültesi Dergisi, 22(2), 219–248.
  • Canbaş, S., & Kandır, S. Y. (2009). Investor Sentiment and Stock Returns: Evidence from Turkey. Emerging Markets Finance and Trade, 45(4), 36–52. https://doi.org/10.2753/REE1540-496X450403
  • Carrion-i-Silvestre, J. L., Kim, D., & Perron, P. (2009). GLS-BASED UNIT ROOT TESTS WITH MULTIPLE STRUCTURAL BREAKS UNDER BOTH THE NULL AND THE ALTERNATIVE HYPOTHESES. Econometric Theory, 25(06), 1754. https://doi.org/10.1017/S0266466609990326
  • Chen, M.-P., Chen, P.-F., & Lee, C.-C. (2013). Asymmetric effects of investor sentiment on industry stock returns: Panel data evidence. Emerging Markets Review, 14, 35–54. https://doi.org/10.1016/J.EMEMAR.2012.11.001
  • Chen, N.-F., Kan, R., & Miller, M. H. (1993). Are the Discounts on Closed-End Funds a Sentiment Index? The Journal of Finance, 48(2), 795–800. https://doi.org/10.1111/j.1540-6261.1993.tb04741.x
  • Chiang, M.-C., Tsai, I.-C., & Lee, C.-F. (2011). Fundamental indicators, bubbles in stock returns and investor sentiment. The Quarterly Review of Economics and Finance, 51(1), 82–87. https://doi.org/10.1016/J.QREF.2010.11.001
  • De Long, J. B., Shleifer, A., Summers, L. H., & Waldmann, R. J. (1990). Noise Trader Risk in Financial Markets. Journal of Political Economy, 98(4), 703–738. https://doi.org/10.1086/261703
  • Dickey, D. A., & Fuller, W. A. (1979). Distribution of the Estimators for Autoregressive Time Series With a Unit Root. Journal of the American Statistical Association, 74(366), 427. https://doi.org/10.2307/2286348
  • Fisher, K. L., & Statman, M. (2003). Consumer Confidence and Stock Returns. The Journal of Portfolio Management, 30(1), 115–127. https://doi.org/10.3905/jpm.2003.319925
  • Granger, C. W. J. (1969). Investigating Causal Relations by Econometric Models and Cross-spectral Methods. Econometrica, 37(3), 424–438. https://doi.org/10.2307/1912791
  • Granger, C. W. J. (1988). Some recent development in a concept of causality. Journal of Econometrics, 39(1–2), 199–211. https://doi.org/10.1016/0304-4076(88)90045-0
  • Jansen, W. J., & Nahuis, N. J. (2003). The stock market and consumer confidence: European evidence. Economics Letters, 79(1), 89–98. https://doi.org/10.1016/S0165-1765(02)00292-6
  • Kahneman, D., & Tversky, A. (1979). Prospect Theory: An Analysis of Decision under Risk. Econometrica, 47(2), 263–291. https://doi.org/10.2307/1914185
  • Korkmaz, T., & Çevik, E. (2009). Reel Kesim Güven Endeksi ile İMKB 100 Endeksi arasındaki dinamik nedensellik ilişkisi. Istanbul University Journal of the School of Business Administration, 38(1), 24–37.
  • Kwiatkowski, D., Phillips, P. C. B., Schmidt, P., & Shin, Y. (1992). Testing the null hypothesis of stationarity against the alternative of a unit root: How sure are we that economic time series have a unit root? Journal of Econometrics, 54(1–3), 159–178. https://doi.org/10.1016/0304-4076(92)90104-Y
  • Lee, C. M. C., Shleifer, A., & Thaler, R. H. (1990). Anomalies: Closed-End Mutual Funds. Journal of Economic Perspectives, 4(4), 153–164. https://doi.org/10.1257/jep.4.4.153
  • Lee, C., Shleifer, A., & Thaler, R. H. (1991). Investor sentiment and the closed end fund puzzle. The Journal of Finance, 46(1), 75–109. https://doi.org/10.2307/2328690
  • Ni, Z.-X., Wang, D.-Z., & Xue, W.-J. (2015). Investor sentiment and its nonlinear effect on stock returns—New evidence from the Chinese stock market based on panel quantile regression model. Economic Modelling, 50, 266–274. https://doi.org/10.1016/J.ECONMOD.2015.07.007
  • Olgaç, S., & Temizel, F. (2008). Yatırımcı Duyarlılığı Hisse Senedi Getirileri İlişkisi: Türkiye Örneği. TISK Akademi, 3(6), 224–239.
  • Otoo, M. W. (1999). Consumer Sentiment and the Stock Market. FEDS Working Paper No. 99-60.
  • Phillips, P. C. B., & Perron, P. (1988). Testing for a unit root in time series regression. Biometrika, 75(2), 335–346. https://doi.org/10.1093/biomet/75.2.335
  • Phillips, P. C. B., Shi, S., & Yu, J. (2015). TESTING FOR MULTIPLE BUBBLES: HISTORICAL EPISODES OF EXUBERANCE AND COLLAPSE IN THE S&amp;P 500. International Economic Review, 56(4), 1043–1078. https://doi.org/10.1111/iere.12132
  • Ritter, J. R. (2003). Behavioral finance. Pacific-Basin Finance Journal, 11(4), 429–437. https://doi.org/10.1016/S0927-538X(03)00048-9
  • Schmeling, M. (2009). Investor sentiment and stock returns: Some international evidence. Journal of Empirical Finance, 16(3), 394–408. https://doi.org/10.1016/J.JEMPFIN.2009.01.002
  • Shefrin, H. (1999). Irrational Exuberance and Option Smiles. Financial Analysts Journal, 55(6), 91–103. https://doi.org/10.2469/faj.v55.n6.2316
  • Shi, S., Phillips, P. C. B., & Hurn, S. (2018). Change Detection and the Causal Impact of the Yield Curve. Journal of Time Series Analysis, 39(6), 966–987. https://doi.org/10.1111/jtsa.12427
  • Swanson, N. R. (1998). Money and output viewed through a rolling window. Journal of Monetary Economics, 41(3), 455–474. https://doi.org/10.1016/S0304-3932(98)00005-1
  • Thaler, R. H. (2000). From Homo Economicus to Homo Sapiens. Journal of Economic Perspectives, 14(1), 133–141. https://doi.org/10.1257/jep.14.1.133
  • Thoma, M. A. (1994). Subsample instability and asymmetries in money-income causality. Journal of Econometrics, 64(1–2), 279–306. https://doi.org/10.1016/0304-4076(94)90066-3
  • Topuz, Y. V. (2011). Tüketici Güveni Ve Hisse Senedi Fiyatları Arasındaki Nedensellik İlişkisi: Türkiye Örneği. Ekonomik ve Sosyal Araştırmalar Dergisi, 7(1), 53–65.
  • Uygur, U., & Taş, O. (2014). The impacts of investor sentiment on different economic sectors: Evidence from Istanbul Stock Exchange. Borsa Istanbul Review, 14(4), 236–241. https://doi.org/10.1016/J.BIR.2014.08.001
  • Zouaoui, M., Nouyrigat, G., & Beer, F. (2011). How Does Investor Sentiment Affect Stock Market Crises? Evidence from Panel Data. Financial Review, 46(4), 723–747. https://doi.org/10.1111/j.1540-6288.2011.00318.x
There are 39 citations in total.

Details

Primary Language English
Journal Section Articles
Authors

Efe Çağlar Çağlı 0000-0002-8250-141X

Publication Date March 27, 2019
Published in Issue Year 2019 Volume: 14

Cite

APA Çağlı, E. Ç. (2019). The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test. Yaşar Üniversitesi E-Dergisi, 14, 164-172.
AMA Çağlı EÇ. The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test. Yaşar Üniversitesi E-Dergisi. March 2019;14:164-172.
Chicago Çağlı, Efe Çağlar. “The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test”. Yaşar Üniversitesi E-Dergisi 14, March (March 2019): 164-72.
EndNote Çağlı EÇ (March 1, 2019) The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test. Yaşar Üniversitesi E-Dergisi 14 164–172.
IEEE E. Ç. Çağlı, “The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test”, Yaşar Üniversitesi E-Dergisi, vol. 14, pp. 164–172, 2019.
ISNAD Çağlı, Efe Çağlar. “The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test”. Yaşar Üniversitesi E-Dergisi 14 (March 2019), 164-172.
JAMA Çağlı EÇ. The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test. Yaşar Üniversitesi E-Dergisi. 2019;14:164–172.
MLA Çağlı, Efe Çağlar. “The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test”. Yaşar Üniversitesi E-Dergisi, vol. 14, 2019, pp. 164-72.
Vancouver Çağlı EÇ. The Causality Between Consumer Confidence Index and Stock Returns: Evidence from Recursive Evolving Granger Causality Test. Yaşar Üniversitesi E-Dergisi. 2019;14:164-72.