Understanding Investor Sentiment Case Solution And Analysis, HBR Case Study Solution & Analysis of Harvard Case Studies

INTRODUCTION

INVESTOR SENTIMENTS:

Investor sentiment can be defined as an investor’s reaction towards the changes that occurs in the financial /stock market. Investor’s sentiments change when they anticipate that prices of a particular stock or security tends to change in the future.

Investor sentiments in the financial market are always present that can be seen when expected future returns of present investment is expected to fluctuate.

There are basically two types of investor sentiments:

First type of investor sentiments:

The first type of investor sentiments is that the investor may overestimate the return of future possible outcomes of their present investment. This means an investor is highly confident that the future expected return of an investment will higher than its true likelihood or from their actual value. However, they end up with disappointment when the actual returns are below the expected return in future.

Second type of investor sentiments:

The second type of investor sentiment is that the investor may underestimate or assign true values to the future possible return of their present investment. But they react emotionally when the actual results are above or below the expected return due to the uncertainty in the price changes in the financial market.

An investor sentiment is also measured by the changes in the behavior of the stock market price changes. Different methods and procedure are designed to determine sentiments of investors in the stock market.

Problem and Its Scope:

Investor sentiments are very important in the financial market. An investor sentiment plays a crucial role in the change of stock prices occurred in the financial market which effects their investment decision.

The sentiment of an investment changes depending upon the changes that are occurring in the price direction of the stock. An investor sentiment may be bullish, in middle or bearish. If an investor measures the price movement of the stock accurately; then they may use it for their benefit.

The attitude of an investor towards the financial market or for any particular security that is traded on the market and their approach to determine the direction of the price changes; help them to make an investment decision both long-term and short-term.

An investor sentiment is said to be bullish if they expect that the price movement of the stock or a particular security is moving in upward direction. On the other side, their sentiment is said to be bearish if they expect that the price movement of the security is moving in a downward direction.

OBJECTIVE OF THE STUDY:

Following are the objectives of the study:

ü To examine the sentiments of an investor when they invest in the financial market.

ü To understand their reaction that result from the changes in stock prices.

ü To assess the effect of the investors actual return vs. expected future returns.

ü Analyze the change in the stock prices that occurred due to irrational reaction of the investor.

BACK GROUND:

Many studies in the past analyze the uncertainty in the stock’s market price and the investor sentiments in the stock market after investment. Several studies examine the efficiency of pre event and post event stock prices as an investor’s decision about their future outcomes may depend upon the pre and post event security price changes.

The expectations of an investor about their future cash flows return is determined by the change that occurred in the stock prices in the financial market. The decision of making long-term investment in the stock depend upon the price uncertainty in the stock market that means that prices are efficient or inefficient (Edman, 2009).

Different studies showed that outcomes that obtained from the book marker odds and from the betting exchange prices are important to analyze the investor sentiment of their future event returns.

An investor sentiment affects the changes in the prices of the stock market. An investor approach towards the stock market price changes which determines their sentiments. The stocks that are valuable and difficult to arbitrage are mostly affected by the sentiments of an investor and an investor’s sentiment also affects the cost of capital (Wurgler, 2007).

The future expected returns of the event are anticipated by price movement around the important matches that are publicly traded on soccer club. An investor decision about their long-term and short-term investment in the stock determines the price change of the future outcomes of the present values. Investor’s sentiments end up with positive or negative returns when they underestimate or overestimate (Polka, 2009).

The changes in the stock market prices affect the mood of investors. Investor estimation about their future outcomes plays an important part in earning the positive or negative returns of their present investments. If they estimate correctly, they get positive returns but if they misestimate the future returns then they get negative returns which affect an investor’s sentiments and they react irrationally (Norli, 2007)........................

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