Derya Güler

This paper investigates the mediation effect of trading volume to explore the relationship between investor sentiment, measured as a volatility forecast (VIX), and the return of tech companies based on the mediation analysis. This paper focuses on Tesla, a list of the 30 largest technology companies and the MSCI World Index. It implements this mediation analysis by using an ARMA-EGARCH model for the time series of Tesla stock and the MSCI World Index returns and a Fixed-Effects regression model for stock returns of the list of 30 technology companies. Estimation results show that trading volume mediates the relationship between investor sentiment and stock returns. The mediating effect found in the case of Tesla and the MSCI World Index is much more present than regarding the list of companies. Furthermore, to obtain an all-encompassing analysis and create less dependence on proxy selection, additional mediation analyses are incorporated that include the 10-year Treasury yields, prices of the Swiss franc currency and the Baker-Wurgler index as investor sentiment proxies. The results show that the mediating effect of the trading volume is present also for these proxies providing more evidence that such a mediating effect is the underlying mechanism in stock markets.

This paper studies the impact of investor sentiment on the Bitcoin returns and conditional volatility taking into account the Covid-19 outbreak by using different investor sentiment proxies and by employing the EGARCH model. Estimation results show that investor sentiment has a positive impact on the Bitcoin returns and their volatility, especially after the Covid-19 outbreak. The VAR model is employed to investigate whether investor sentiment and Bitcoin returns are related in a dynamic setting and to make distinguish between rational and irrational investor sentiments. The results from the VAR model show that both rational and irrational investor sentiments have an impact on Bitcoin returns indicating that the Bitcoin market is also driven by emotions and noise traders have an impact on the data generating process of Bitcoin returns. The positive impact of investor sentiment can be attributed to the fear of missing out (FOMO) behavior of speculative and irrational investors.