The relationship between market sentiment index and stock rates of return: a panel data analysis

This article analyzes the relationship between market sentiment and future stock rates of return. We used a methodology based on principal component analysis to create a sentiment index for the Brazilian market with data from 1999 to 2008. The sample consisted of companies listed on BM&F BOVESPA which were grouped into quintiles, each representing a portfolio, according to the magnitude of the following characteristics: market value, total annualized risk and listing time on BM&F BOVESPA. Next, we calculated the average return of each portfolio for every quarter. The data for the first and las...