The aim of this paper is to model trading decisions of financial investors based on a sentiment index. For this purpose, we analyze a dynamical model, which includes the sentiment index in the agents' trading behavior. We consider the setup of a discrete dynamical system, assuming that in financial markets, transactions take place between two groups of fundamentalists that differ in their perception of fundamental value. This assumption is motivated by a degree of uncertainty about the true fundamental value. The proportion of fundamentalists in the two groups is assumed to depend on the sentiment index. The sentiment index used is related to the risk asymmetry index, enabling us to consider both the variance and the asymmetry of the prediction error between the two groups of fundamentalists. We identify the equilibria of the model and conduct a numerical analysis in order to capture stylized facts documented empirically in the financial literature.

Investor sentiment and trading behavior / Campisi, G.; Muzzioli, S.. - In: CHAOS. - ISSN 1054-1500. - 30:9(2020). [10.1063/5.0011636]

Investor sentiment and trading behavior

Campisi G.
;
2020-01-01

Abstract

The aim of this paper is to model trading decisions of financial investors based on a sentiment index. For this purpose, we analyze a dynamical model, which includes the sentiment index in the agents' trading behavior. We consider the setup of a discrete dynamical system, assuming that in financial markets, transactions take place between two groups of fundamentalists that differ in their perception of fundamental value. This assumption is motivated by a degree of uncertainty about the true fundamental value. The proportion of fundamentalists in the two groups is assumed to depend on the sentiment index. The sentiment index used is related to the risk asymmetry index, enabling us to consider both the variance and the asymmetry of the prediction error between the two groups of fundamentalists. We identify the equilibria of the model and conduct a numerical analysis in order to capture stylized facts documented empirically in the financial literature.
2020
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Descrizione: This article may be downloaded for personal use only. Any other use requires prior permission of the author and AIP Publishing. This article appeared in Giovanni Campisi, Silvia Muzzioli; Investor sentiment and trading behavior. Chaos 1 September 2020; 30 (9): 093103. https://doi.org/10.1063/5.0011636 and may be found at https://doi.org/10.1063/5.0011636
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11566/295150
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