This dissertation was written as part of the Master of Science (MSc) in Banking and
Finance at the International Hellenic University.
This research provides an introduction to Behavioral Finance and empirically
investigates sentiment captured by the well-known VIX index (the fear index) in the
US stock exchange. As expected by previous literature, a negative relationship
between the fear index and the stock market index is documented along with the
asymmetric relationship of the VIX index and the S&P500 index from January 2000
to October 2019. Moreover, in order to further elaborate on the relationship between
fear and stock market sub-periods are examined to cover the period before, during and
after the global financial crisis of 2007-2009.
The empirical results provide recent evidence to general asymmetry in the reaction of
the fear index to the stock market returns. In fact, it seems that the estimated negative
asymmetric relationship was strong before the global financial crisis and became even
stronger after the global financial crisis. This study indicates the significant role of
investor sentiment in the investment environment especially during crisis periods and
provides useful results for market participants.
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