Relationship Among Investor Sentiment and Financial Market Dynamics

The focus of this book is to investigate the relationship between investor’s sentiment and financial market dynamics and to test if investor’s sentiment contributes to amplify the impact of instability on stock market dynamics.We have chosen the Generalized Method of Moments in two steps (GMM-2S) for estimating this close relationship. The estimation results of simultaneous equations – GMM-2S method- linking the return volatility and investor sentiment prove that during political stability period investor sentiment didn’t affect market return and volatility. However during the period characterized by the occurrence of the Tunisian Revolution and thus political instability a significant bidirectional relationship between investor sentiment and market volatility and return was highlighted. These results highlight that investor’s behavior compound political instability effect on Tunisian market.