(An) empirical study on investor sentiment, style investing, and momentum in the Korean stock market

Abstract

This study employs the methodology introduced by Ashour et al. (2023) to investigate how the returns of style portfolios, which are grounded in individual investor sentiment, influence individual stock returns and momentum in the Korean stock market. The results indicate that, in periods of high investor sentiment, style investment strategies exhibit superior predictive abilities for future stock returns compared to low sentiment periods. The correlation between style returns and stock returns is a significant factor in explaining variations in momentum profits, specifically during high sentiment periods. This underscores that, in periods of high investor sentiment, style momentum strategies play a role in amplifying the momentum of individual stocks. The robustness of the relationship between investor sentiment and style investing is consistently supported, incorporating various regression models and market condition variables. As a result, it confirms that the interactive relationship between investor sentiment and style returns remains intact, independent of market returns.