Investor sentiment by relative strength index and stock return: Empirical evidence on vietnam's stock market

Abstract

This article examines how investor sentiment affects stock returns on Vietnam's stock market. Investor sentiment index is measured by a relative strength index (RSI) of 57 companies listed on the Ho Chi Minh Stock Exchange from January 1, 2015 to July 31, 2020. Control variables include investors' stock trading behavior, firm size, and cash flow per share. Using Fama-MacBeth regression estimation and general least square estimation (GSL) on a daily basis, both methods find the sentiment of high investors producing higher stock returns, on the contrary, the sentiment of low investors erodes stock returns. Different from the results of Brown and Cliff (2004) [Brown, G. W., & Cliff, M. T. (2004). Investor sentiment and the near-term stock market. Journal of empirical finance, 11(1), 1-27], the article found that the investor sentiment factor plays the most important role in explaining the return of the stock market compared to the rest of the factors.