A Principal Component Approach to Measuring Investor Sentiment in Hong Kong

Chong, Terence Tai-Leung and Cao, Bingqing and Wong, Wing Keung (2017): A Principal Component Approach to Measuring Investor Sentiment in Hong Kong.

Abstract

In light of the increasing integration between China and Hong Kong, this paper develops a new market sentiment index for the Hong Kong stock market by including the CSI 300 index of the Chinese equity market. A threshold regression model using the sentiment index as a threshold variable is estimated to capture the state of the Hong Kong stock market.

• Item Type: MPRA Paper
• Language: English
• Keywords: Principal component analysis; Market sentiment; CSI 300; Threshold model
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; G - Financial Economics > G1 - General Financial Markets > G17 - Financial Forecasting and Simulation

References

Chen, H., Chong, T.T.L. and Duan, X. (2010). A principal-component approach to measuring investor sentiment. Quantitative Finance, 10(4), 339-347.

Chen, H., Chong, T.T.L. and She, Y. (2014). A principal component approach to measuring investor sentiment in China. Quantitative Finance, 14(4), pp. 573-579.

Chong, T.T.L., Lam, T.H. and Yan, I.K.M. (2012). Is the Chinese stock market really inefficient?", China Economic Review, 23(1), pp. 122-137.

Hansen, B.E. (2000). Sample splitting and threshold estimation. Econometrica, 68(3), 575-603.

Lee, C.M.C., Shleifer, A. and Thaler, R. H. (1991). Investor sentiment and the closed-end fund puzzle. Journal of Finance, 46(1), 75-109.

Lee, K.Y. (2006). The contemporaneous interactions between the U.S., Japan, and Hong Kong stock markets. Economics Letters, 90(1), 21-27.

Lunde, A. and Timmermann, A. (2004). Duration dependence in stock prices: an analysis of bull and bear markets. Journal of Business & Economic Statistics, 22(3), 253-273.

Neal, R. and Wheatley, S.M. (1998). Do measures of investor sentiment predict returns? Journal of Financial and Quantitative Analysis, 33(4), 523-547.

Pagan, A.R. and Sossounov, K.A. (2003). A simple framework for analysing bull and bear markets. Journal of Applied Econometrics, 18(1), 23-46.

Tsay, R.S. (1998). Testing and modeling multivariate threshold models. Journal of the American Statistical Association, 93(443), 1188-1202.

Wang, C., (2001). Investor sentiment and return predictability in agricultural futures markets. Journal of Futures Markets, 21(10), 929-952.

Zhou, X., Zhang, W. and Zhang, J. (2012). Volatility spillovers between the Chinese and world equity markets. Pacific-Basin Finance Journal, 20(2), 247-270.