Does Investor Sentiment Affect Mexican a� Stock Market Returns and Volatility?

Abstract

This paper employs anaugmented GARCH-in-mean model to examine the impact of investor sentiment on the excess returns and volatility of the Mexican stock market. The results indicate that positive changes in investor sentiment lead to higher excess returns for the market portfolio and for large-, medium-, and small-cap portfolios. Additionally, we find that, although insignificant, positive changes in investor sentiment are associated with lower conditional volatility in the subsequent period, while the opposite is true for negative changes in sentiment.