Measuring investors’ emotions using econometric models of trading volume of stock exchange indexes

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Traditional finance explains all human activity on the ground of rationality and suggests all decisions are rational because all current information is reflected in the prices of goods. Unfortunately, the development of information technology and a growth of demand for new, attractive possibilities of investment caused the process of searching new, unique signals supporting investment decisions. Such a situation is similar to risk-taking, so it must elicit the emotional reactions of individual traders.
The paper aims to verify the question that the market risk may be the determinant of traders’ emotions, and if volatility is a useful tool during the investment process as the measure of traders’ optimism, similarly to Majewski’s work (2019). Likewise, various econometric types of models of estimation of the risk parameter were used in the research: classical linear using OLS, general linear using FGLS, and GARCH(p, q) models using maximum likelihood method. Hypotheses were verified using the data collected from the most popular world stock exchanges: New York, Frankfurt, Tokyo, and London. Data concerned stock exchange indexes such as SP500, DAX, Nikkei, and UK100.

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    • Table 1. ARCH(1) estimation for DAX index
    • Table 2. GARCH(1,1) estimation for S&P500 index
    • Table 3. ARCH(1) estimation for NIKKEI 225 index
    • Table 4. GARCH(1,1) estimation for FTSE 100 index
    • Conceptualization
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Data curation
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Formal Analysis
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Funding acquisition
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Investigation
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Methodology
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Project administration
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Resources
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Software
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Supervision
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Validation
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Visualization
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Writing – original draft
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska
    • Writing – review & editing
      Sebastian Majewski, Waldemar Tarczynski, Malgorzata Tarczynska-Luniewska